WHERE  AND  WHY  PUBLIC 
OWNERSHIP  HAS  EAI LED 


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WHERE  AND  WHY 
PUBLIC  OWNERSHIP  HAS   FAILED 


THE  MACMILLAN  COMPANY 

NEW  YORK   •    BOSTON   •    CHICAGO 
DALLAS    •    ATLANTA    •    SAN   FRANCISCO 

MACMILLAN  &  CO..  Limited 

LONDON  •    BOMBAY  •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


WHERE   AND   WHY 

PUBLIC    OWNERSHIP 

HAS    FAILED 


BY 

YVES   GUYOT 


EDITOR-IN-CHIEF     OF     THE     JOURNAL     DES     ECONOMISTES,     PRESIDENT     OF    THE     SOCIETE 
d'économie   POLITIQUE  OF  PARIS,  MEMBER  OF  THE  AMERICAN  ACADEMY  OF  POLITICAL 
AND   SOCIAL   SCIENCE,    HON.  MEMBER    OF   THE   ROYAL   STATISTICAL   SOCIETY   AND 
THE    COBDEN   CLUB    OF   GREAT   BRITAIN,    FORMER   VICE-PRESIDENT   OF   THE 
MUNICIPAL  COUNCIL   OF   PARIS.   DEPUTY  TO   THE   FRENCH   PARLIA- 
MENT AND   MINISTER   OF   PUBLIC   WORKS,   ETC.,  ETC. 


TRANSLATED  FROM  THE  FRENCH  BY 

H.  F.  BAKER 


THE    MACMILLAN    COMPANY 

1914 

All  rights  reserved 


Copyright,  1914 
By  the  municipal  OWNERSHIP  PUBLISHING  COUTANY 

Set  up  and  electrotyped.    Published  February,  1914 


PREFACE 

The  chief  difficulty  in  preparing  this  book  has  been 
r^  to  make  a  coherent  arrangement  of  the  material,  as 
,     the  various  sources  from  which  it  has  been  gathered 
are  more  or  less  incomplete.     Indeed  the  obstacles  in 
^  the  way  of  presenting  a  true  picture  of  industrial  en- 
terprises, as  operated  by  states  and  local  governments, 
.  ^  can  scarcely  be  exaggerated. 

y 

A     The  partisans  of  government  and  municipal  owner- 
Y^ship  of  every  species  of  public  utility  have  assumed  a 
distinctive  title.     They  call  themselves  representatives 
^.of  the  movement  for  direct  operation  (Représentants 
v>  de  la  Régie  Directe).  Their  leader  in  France  is  Edgard 
'^  Milhaud,  occupying  the  chair  of  Political  Economy  at 
the  University  of  Geneva,  where  he  makes  a  special 
^  point  of  emphasizing  Socialism.^    In  a  little  periodical, 
-^  entitled  Annales  de  la  Régie  Directe,  he  presents  the 
case  for  all  government  and  municipal  undertakings, 
N^lthough  his  enthusiasm  frequently  receives  cruel  set- 
backs, as  in  the  suicide  of  the  Mayor  of  Elbeuf.     He 
sUjas  also  published  several  articles  for  the  purpose  of 
"^demonstrating  that  accidents  are  much  less   frequent 
upon  government  railways  than  upon  the  lines  of  pri- 
vate companies.     We  shall  see  later  (Book  3,  Chapter 

^  See  La  Démocratie  Socialiste  Allemande,  Paris,  F.  Alcan. 

V 

238491) 


WHERE    AND    WHY    i'UBLIC    OWNERSHIP    HAS    FAILED 

2)  the  value  of  these  attempts  to  justify  his  creed,  and 
we  may  judge  from  them  the  importance  that  is  to  be 
attached  to  his  other  statements. 

For  the  academic  year  1911-1912,  L'École  des 
Hautes  Études  Sociales  organized  a  series  of  confer- 
ences on  the  subject  of  pubHc  operation  under  the  direc- 
tion of  M.  Milhaud.  It  was  considered  advisable  that 
at  the  close  of  this  series  a  dissenting  voice  should 
be  heard — a  rôle  ultimately  assigned  to  me.  In  addi- 
tion to  ten  preceding  lectures,  wherein  the  whole 
theory  and  practice  of  Socialism  had  been  set  forth, 
M.  Milhaud  was  to  speak  for  forty  minutes,  after 
which  I  was  to  be  allotted  forty  in  which  to  refute 
the  points  previously  developed  by  him  during  640 
minutes.  Then  we  were  both  to  be  allowed  twenty 
minutes  in  order  to  sum  up  our  arguments.  I  had  at 
least  the  satisfaction  of  knowing  that  L'Humanité  ^ 
attached  sufficient  importance  to  this  conference  to  an- 
nounce that  for  several  days  before  it  was  to  take  place 
entrance  tickets  would  be  reserved  for  "comrades"  ; 
under  which  conditions  it  was  not  difficult  to  foresee 
that  the  hall  would  be  converted  into  a  public  assembly 
room. 

His  audience,  thus  prepared  and  won  over,  natur- 
ally gave  M.  Milhaud  an  enthusiastic  welcome.  How- 
ever, despite  some  murmurs,  it  proved  itself  not 
unwilling  to  allow  me  to  oppose  my  facts  to  his  state- 
ments. 

I   borrow    from   the   report   of   the   discussion,    as 
published  in  L'Humanité,  November  14,  1911,  the  fol- 
lowing resume  of  the  argument  of  M.  Milhaud  : 
*  The  organ  of  the  Socialist  propaganda. 

vi 


PREFACE 

"Private  monopoly,  seeking  nothing  but  maximum 
profit,  is  far  more  costly  than  public  monopoly,  which  is 
not  bound  by  the  same  conditions.  Money  costs  public 
enterprises  less,  and,  therefore,  they  can  amortize  their 
debt  and  thus  reduce  general  expenses.  On  the  other 
hand,  heavier  expenses  for  labor  can  be  supported  by 
public  undertakings.  The  management  of  a  public  enter- 
prise can  even  hope  for  profit,  and  all  this  can  be  accom- 
plished within  less  rigid  limits  than  those  which  neces- 
sarily confine  private  monopoly. 

"Milhaud  concluded  by  outlining  the  tendency  of  pub- 
lic enterprises  to  become  administrative  autonomies.  In 
order  that  they  may  escape  pernicious  bureaucratic  influ- 
ences, they  are  being  transformed  into  separate  commer- 
cial entities.  Through  increased  control  by  the  con- 
sumer, on  the  one  hand,  and  by  labor  on  the  other,  they 
are  being  gradually  but  completely  socialized. 

"Through  reduction  in  prices,  these  enterprises  create 
larger  bodies  of  consumers,  and  they  also  bring  about 
more  flexible  relations  between  employers  and  employed. 
The  representatives  of  collectivism,  individual  consumers 
and  producers,  may  thus  unite  in  behalf  of  social 
progress." 

When  we  come  to  examine  the  assertions  of  the 
propagandists  of  public  operation,  we  perceive  that 
they  are  of  no  better  quality  than  any  other  Socialist 
theories  ;  but  the  assured  manner  with  which  these 
statements  are  declared  succeeds  in  disturbing  and  in- 
timidating many  people.  Yet,  in  the  elections  of  19 lo, 
Paul  Forsans,  President  of  La  Société  des  Intérêts 
Économiques,  was  able  to  organize  a  vigorous  cam- 
paign against  an  alcohol  and  insurance  monopoly. 

French  Socialists,  unable  to  appeal  to  the  experience 

vii 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

of  the  Western  (state)  railroad,  or  the  experience  of 
the  town  of  Elbeuf,  say:  "Very  good,  but  in  Prussia 
the  state  railways  are  altogether  satisfactory,  and,  in 
all  the  important  cities  of  Great  Britain,  Municipal  So- 
cialism is  enjoying  a  veritable  triumph." 

Such  partisans  quote  the  testimony  of  public  depart- 
ments, never  weary  of  boasting  of  their  own  success- 
ful administration,  and  of  municipalities  which,  in- 
spired by  local  pride,  declare  that  they  have  accom- 
plished miracles.  But  how  can  we  accept  these  preju- 
diced certificates  of  good  conduct  until  we  have  been 
privileged  to  make  a  detailed  inventory? 

There  is  a  crying  need  at  the  present  time  for  col- 
lections of  precise  facts,  which  shall  show  the  vanity 
and  "bluff"  of  Socialist  programs,  and  such  facts  must 
be  placed  before  the  public.  My  sole  object  in  writ- 
ing this  book  has  been  to  present  just  such  a  compila- 
tion of  rigidly  investigated,  authentic  facts  and  figures 
regarding  public  ownership  and  operation.  If  I  have 
not  been  able  to  affirm  that  government  and  municipal 
undertakings  are  efficient  the  fault  is  not  mine.  I  have 
not  found  them  so. 

A  well-known  American,  Arthur  Hadley,  President 
of  Yale  University,  says,  in  his  book  entitled  Eco- 
nomics: 

"The  advantages  of  intervention  on  the  part  of  a 
government  are  visible  and  tangible  facts  :  The  evil  that 
results  from  such  intervention  is  much  more  indirect  and 
can  only  be  appreciated  after  close  and  intensive  study." 

I  have  vainly  sought  for  the  benefit  arising  from 
public  operation  by  states  and  municipalities.     On  the 

viii 


PREFACE 

contrary  an  unbiassed  survey  of   the  whole  subject 
forces  me  to  testify  to  the  resulting  harm. 

Y.  G. 
November,   19 12. 

For  the  American  edition  the  facts  and  figures 
herein  set  forth  have  been  brought  up  to  date — June, 
1913- 


IX 


TRANSLATOR'S  NOTE 

The  translation  has  been  read  and  revised  by  the 
Author.  Otherwise  my  hearty  thanks  for  most  valu- 
able assistance  given  in  translation  are  due  to  Miss 
Elise  Warren  and  Mr.  William  D.  Kerr. 


CONTENTS 

BOOK   I 
Public  and  Private  Trading  Operations 

PAGE 

I.     Two  Precepts i 

II.     The  Three  Main-Springs  of  Human  Action 2 

III.  Determining  Motives  of  Private  as  Against  Public 

Enterprises 5 

IV.  Government  and  Municipal  Trading  Operations 16 

BOOK  II 

Financial  Results  of  Government  and  Municipal  Ownership 

I.     Bookkeeping  in  State  and  Municipal  Trading  Enter- 
prises    35 

II.     The  Belgian  State  Railroads 46 

III.  Prussian  Railroads 55 

IV.  State  Railways  of  Austria  and  Hungary 72 

V.     Italian  Railways 77 

VI.     The  Railways  of  the  Swiss  Federation 88 

VII.     Railways  of  New  Zealand 94 

VIII.     Government  Railroads  in  France 105 

IX.     Public  vs.  Private  Operation 118 

X.     The  Holy  Cities  of  Municipal  Operation 125 

XI.  Operation  of  Gas  and  Electricity  in  the  United  King- 
dom    127 

XII.     Tramways  in  Great  Britain 136 

XIII.  Housing  of  the  Working  Classes  and  Public  Ownership 

in  Great  Britain 151 

XIV.  Housing  of  the  Working  Classes  (Continued) 161 


CONTENTS 

PAGE 

XV.     Government  Control  of  Food  Supplies 175 

XVI.     Victims  of  Government  Ownership 181 

XVII.     Charges,  Debts  and  Credits 183 

XVIII.     Fictitious  Profits 191 

XIX.     Fiscal  Monopolies 194 

XX.     The  Alcohol  Monopoly  in  Switzerland  and  Russia .  .  .  205 

XXI.     Financial  Disorder 216 

XXII.     The  Purchase  Price 241 

XXIII.     Delusions  of  Profit  and  the  Life  Insurance  Monopoly 

in  Italy 243 

XXIV.     The  Fiscal  Mines  of  the  Saar  District 253 

XXV.     Public  vs.  Private  Enterprises 256 


BOOK  III 

Administrative  Results 

I.     Administrative  Results 271 

II.     The   Safety  of  Travellers  upon   State  and   Private 

Railway  Lines 272 

III.  Disorders,  Delays  and  Errors 280 

IV.  Official  Conservatism 292 

V.     Labor 300 

VI.     The  Consumer 348 

VII.     Programs  of  Organization  and  Regulation 369 


BOOK   IV 

Political  and  Social  Consequences  of  Public  Operation 

I.  Socialist  Programs  and  the  Facts 381 

II.  Bluff 394 

III.  Results  of  Experience 398 

IV.  The  State  a  Dishonest  Man 400 

V.  Corruption 423 

VI.     Nationalization  of  Public  Utilities  and  the  Foundation 

of  Great  Fortunes 427 

VII.     Disintegrating  Character  of  Public  Operation 429 


WHERE  AND  WHY 
PUBLIC  OWNERSHIP  HAS   FAILED 


Where  and  Why  PubHc  Owner 
ship  Has  Failed 


BOOK    I 

PUBLIC  AND  PRIVATE  TRADING 
OPERATIONS 

CHAPTER  I 

TWO   PRECEPTS 

Neither  national  nor  local  governments  should 
attempt  that  which  can  be  done  by  individuals:  says 
the  economist. 

Labor  for  personal  profit  must  be  replaced  by  labor 
for  the  sake  of  service:  answers  the  Sociahst. 

Experiments  in  the  way  of  nationahzation  and  mu- 
nicipalization of  pubHc  utilities,  with  the  Socialist 
ideal  in  view,  have  been  sufficiently  numerous.  Do 
they  warrant  the  decision  that  nations  and  municipali- 
ties have  reaped  the  advantages  promised  by  their 
advocates?  This  question — primarily  a  psychologi- 
cal one — we  are  going  to  try  and  answer  in  the  fol- 
lowing pages. 

I 


CHAPTER  II 

THE    THREE    MAINSPRINGS    OF    HUMAN    ACTION 

1,  Compulsion. — Bribery. — Instinct     for     Personal     Gain. — 

Government  and   Municipal   Ownership  Would   Substi- 
tute the  First  Two  Influences  for  the  Third. 

2.  No  Dividends  on  Capital  of  Public  Undertakings. — Inter- 

est  and  Amortization. — The   Altruism  of   Disinterested 
Managing  Boards. — Work  for  the  Sake  of  Service. 

I.  Down  to  the  present  time  there  have  been  only 
three  mainsprings  of  human  action — compulsion,  bri- 
bery and  instinct  for  personal  gain. 

Compulsion  is  the  true  basis  of  confiscation  and 
slave  labor.     Give  or  I  take.     Work  or  I  strike. 

Bribery,  in  the  v^^ay  of  high  office,  rewards,  deco- 
rations, rank  and  homage,  helps  to  blind  us  to  the  pres- 
ence of  compulsion.  The  church,  the  schools,  and  the 
army  furnish  the  best  and  most  familiar  examples 
of  the  efifect  of  these  two  forces,  which  government 
and  municipal  ownership  would  substitute  for  the  in- 
centive of  personal  gain. 

Neither  compulsion  nor  bribery,  however,  has 
proved  quite  sufficient  to  induce  continuous  action  on 
the  part  of  employees  and  officials  entrusted  with  the 
operation  of  national  and  municipal  services,  for  they 
are  utterly  incompatible  with  any  form  of  contract. 
The  very  nature  of  a  contract  requires  free  assent  to 

2 


THE   THREE  MAINSPRINGS    OF    HUMAN    ACTION 

its  terms  on  both  sides.     Therefore,  the  third  force, 
the  instinct  for  personal  gain,  is  invoked. 

Personal  gain  does  imply  a  preliminary  agreement 
— assent  on  the  part  of  him  who  offers  his  services  as 
well  as  of  him  who  is  to  pay  for  them.  Every  group 
of  employees  at  the  present  day  is  working,  not  for  the 
sake  of  service,  but  for  gain. 

2.  Is  the  management  of  a  national  or  municipal 
undertaking  more  economical  than  the  management  of 
a  private  enterprise?  "Yes,"  answers  the  Socialist, 
"because  no  dividend  need  be  paid  on  capital." 

But  there  are  interest  and  amortization  to  provide 
for  on  capital.  Consequently  the  margin  of  economy 
is  only  the  difference  between  interest  and  amortiza- 
tion, which  public  undertakings  must  provide,  and 
dividends  which  the  capital  of  private  enterprises  must 
have. 

"The  high-salaried  employees  are  paid  less  by  pub- 
lic than  by  private  enterprises  :  and  there  are  no  boards 
of  financially  interested  directors,"  continues  the 
Socialist. 

This  is  possible,  but  the  salaries  of  ministers, 
burgomasters  and  mayors  are  high  ;  though  these  high 
salaries  come  from  the  exercise  of  several  different 
functions.  It  is  probable  that  high-salaried  govern- 
ment employees  are  paid  less  than  their  colleagues 
of  the  same  relative  rank  in  the  employ  of  pri- 
vate industry  ;  but,  in  general,  the  personnel  of 
public  undertakings  is  more  numerous  and  the  ex- 
penses, therefore,  amount  to  more  in  the  long 
run.    The  management  of  the  Western  (government) 

3 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

railway,  of  France,  for  example,  has  established  six- 
teen directorships  in  place  of  the  three  departmental 
divisions  customary  in  the  case  of  private  railways. 
There  are  no  financially  interested  boards  of  directors, 
but  it  is  a  question  whether  the  altruism  of  the  coun- 
cils which  direct  and  control  national  or  municipal 
undertakings  is  of  greater  advantage  to  these  enter- 
prises than  personal  interest  would  be. 

In  effect  the  partisans  of  public  operation  find 
economy  in  the  non-remuneration  of  capital,  outside 
of  interest  and  amortization,  and  in  the  meager  remu- 
neration of  promoters,  directors,  councillors,  and  the 
chief  managers  of  the  enterprise. 


CHAPTER  III 

DETERMINING   MOTIVES   OF  PRIVATE  AS  AGAINST 
PUBLIC    ENTERPRISES 

1.  Why   Do   Individuals   Establish   an  Undertaking? 

2.  The  Motives  of  Politicians. — Sacrifice  of  the   Service  to 

Personal  Ends. — The  Roof  of  the  Louvre. — The  De- 
partment of  Fine  Arts   (Bçaux  Arts). 

3.  The  Freycinet  Program. 

4.  Municipal  Interests. — Public  Officials. 

5.  Invidia   Dcmocratica — Appeal   to    Party    Passions. — Pur- 

chase of  the  Railways. — The  Purchase  of  the  West- 
ern Line. — Socialization  a  Political   Necessity. 

6.  Financial     Aims     and     Hypocritical     Excuses. — Pretexts 

and  Realities. — The  Alcohol  Monopoly  in  Switzerland 
and  Potatoes. — The  Alcohol  Monopoly  in  Russia,  Tem- 
perance and  Fiscal  Laws. 

I.  When  one  or  more  individuals  invest  their  en- 
ergy, their  knowledge,  and  their  capital  in  an  indus- 
trial enterprise  they  must  be  convinced  beforehand 
that  in  so  doing  they  are  responding  to  a  demand  on 
the  part  of  a  group  of  consumers  having  a  sufficient 
purchasing  power  to  repay  them  for  their  services,  as 
well  as  for  the  products  which  will  be  offered. 

If  the  estimates  of  the  founders  of  such  an  enter- 
prise are  correct,  they  will  gain;  if  incorrect,  they 
will  lose.  In  either  case  they  will  bear  the  responsi- 
bility  for  their  acts.     Gain  or  loss  is  the  inevitable 

5 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

and  infallible  consequence  of  every  such  enterprise. 
And,  as  every  man  who  is  on  the  point  of  engaging 
in  business  knows  that  one  of  them  must  occur,  his 
energy  is  spurred  on  by  the  hope  of  the  one,  while 
at  the  same  time  it  is  being  curbed  by  the  fear  of  the 
other. 

The  industrial  and  commercial  progress  of  all 
nations  far  advanced  along  the  pathway  of  evolution 
proves  that  the  majority  of  those  individuals  or 
groups  of  individuals  who  have  engaged  in  business 
undertakings  have  calculated  accurately. 

2.  Statesmen  at  the  head  of  nations  or  municipali- 
ties are  not  necessarily  responsive  to  the  conditions 
just  described.  The  undertakings  in  which  they  in- 
volve the  state  or  the  municipality  will  not  yield  them 
any  personal  profit  in  case  they  succeed,  nor  will  they 
be  called  upon  to  suffer  any  loss  if  they  fail.  The  in- 
evitable and  infallible  criterion  of  the  business  man  is 
lacking  in  their  case.  By  what  test,  then,  are  their 
motives  to  be  construed? 

As  a  rule  their  action  is  determined  by  the  amount 
of  personal  advantage  resulting  for  themselves;  not, 
it  is  true,  in  the  form  of  gain,  but  in  the  form  of  an 
increase  in  the  duration  or  extent  of  their  power. 
They  establish  such  or  such  an  enterprise,  because,  in 
looking  about  for  some  bait  likely  to  attract  the  pub- 
lic, they  have  found  this  particular  one.  Does  the 
enterprise  fill  a  long-felt  want?  That  is  a  secondary 
question.  The  first  consideration  is  what  will  make 
the  broadest  appeal  to  the  popular  prejudices  and  sym- 
pathies of  the  moment.     I  have  heard  ministers  and 

6 


MOTIVES  OF  PRIVATE  AS  AGAINST   PUBLIC  ENTERPRISES 

deputies  say:  "There  is  nothing  to  do,  but  we  must 
do  something." 

Now  expenditures  which  have  a  certain  audacity 
about  them  are  sure  to  be  accepted  with  a  much  better 
grace  than  those  which  do  not  appeal  to  the  imagina- 
tion of  the  public. 

As  an  instance  in  point,  let  me  quote  from  my  own 
experience. 

When  I  became  minister  of  Public  Works  I  speedily 
discovered  that  the  government  buildings  under  the 
jurisdiction  of  my  department  were  being  very  badly 
kept  up  by  the  department  of  fine  arts  (Beaux  Arts). 
Knowing  by  personal  experience  the  importance  of 
roofs  I  turned  my  attention  first  to  them.  In  the  case 
of  the  Louvre,  to  quote  but  a  single  example,  the 
water  leaking  through  the  roofs  was  cracking  the 
walls.  Moreover,  not  one  of  the  seventeen  lightning 
rods  attached  to  the  building  was  in  working  condi- 
tion, while  the  majority  of  them  were  so  insecure  that 
they  were  liable  to  fall  at  any  moment  on  the  heads 
of  passers-by.  I  used  the  entire  appropriation  at  my 
disposal  to  insure  an  efficient  roofing  of  the  buildings 
entrusted  to  my  care.    The  rest  could  wait. 

But,  from  the  point  of  view  of  popularity,  I  had 
made,  as  I  had  foreseen,  a  wretched  move.  That  form 
of  flattery  which  consists  in  the  sacrifice  of  one's 
own  to  public  opinion  forms  part  of  the  very  stock  in 
trade  of  the  politician  ;  and,  if  he  is  shrewd,  he  will 
not  hesitate  to  make  the  sacrifice. 

Again,  in  1902  the  French  Parliament  passed  a  law 
on  public  hygiene,  under  which  municipalities  are  re- 
quired to  furnish  drinking  water  and  sewerage  sys- 

7 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

terns.  A  number  of  deputies  and  senators  who  had 
voted  for  the  bill  hastened  immediately  to  the  minis- 
ter of  the  interior  to  demand  that  the  law  should  not 
be  applied  to  the  municipalities  in  their  particular  dis- 
tricts.    And  so  it  goes. 

The  following  illustrates  a  different  but  equally 
dangerous  tendency  : 

Certain  officials  of  the  Beaux  Arts  are  provided 
with  funds  for  the  purpose  of  placing  orders  or  for 
the  purchasing  of  works  of  art  at  the  salons.  These 
men  are  beset  by  recommendations  and  advice  of  all 
sorts.  Concentration  of  their  appropriations  upon 
one  important  work  is  out  of  the  question;  they  must 
fritter  them  away  in  small  amounts,  because  there  are 
so  many  people  to  satisfy.  In  all  purchases  of  art 
works  there  is,  of  course,  a  large  proportion  of  mis- 
takes, which  will  be  accounted  in  the  future  as  dead 
losses  ;  but  it  is  not  necessary  to  begin  by  buying  fail- 
ures, as  so  frequently  happens. 

Nor  does  this  criticism  refer  solely  to  contemporary 
officials.  Ministers  and  under-secretaries  of  state  of 
other  periods  than  our  own  were  equally  human. 
Side  by  side  with  the  Thomi  Thierry  art  collection 
in  the  Louvre  are  to  be  found  government  purchases 
of  works  by  the  same  artists,  made  at  the  same  time. 
The  degree  of  taste  shown  in  the  choice  of  the  pic- 
tures included  in  the  Thierry  collection  is  far  superior 
to  that  shown  in  the  official  collection. 

3.  In  1879  Charles  de  Freycinet  prepared  his  grand 
program  of  public  works.  There  is  no  more  agreeable 
pastime  than  to  prepare  a  program  of  public  works. 

8 


MOTIVES  OF  PRIVATE  AS  AGAINST   PUBLIC  ENTERPRISES 

Hope  is  inspired,  delusions  encouraged,  and  we  can 
leave  to  our  successors  the  trouble  of  realizing  them. 
All  succeeding  ministers  of  Public  Works  have  been 
liquidators  of  the  Freycinet  program.  The  spirit 
which  dictated  it  struck  the  public  imagination.  "The 
government/'  it  was  said,  with  the  hearty  applause 
of  the  French  Parliament,  "must  assume  charge  of 
the  national  savings."  As  if  there  were  any  savings 
except  those  of  individuals,  and  as  if  those  who  had 
known  how  to  accumulate  them  would  not  be  more 
careful  to  use  them  to  good  purpose  than  those  who 
had  had  no  interest  in  their  acquisition!  All  the  depu- 
ties and  senators  demanded  a  share  of  the  cake  for 
their  constituents.  M.  de  Freycinet  yielded  every- 
thing, encouraged  still  further  demands,  and  requested 
engineers  to  submit  plans  for  railways,  canals,  or 
ports.  The  government  concentrated  all  its  energies 
on  carrying  out  his  program. 

In  1883,  however,  and  as  a  result  of  all  this,  the 
nation  would  have  been  bankrupt  if  M.  Raynal  had 
not  closed  certain  contracts  with  the  railway  com- 
panies; contracts  which  Camille  Pelletan  later  de- 
scribed as  infamous.  But  he  has  never  explained  what 
the  government  would  have  done  if  the  contracts  had 
not  been  signed. 

4.  A  so-called  movement  of  public  opinion  fre- 
quently rewards  intensive  study.  Any  day  you  may  be 
suddenly  aroused  to  the  consciousness  that  there  is  a 
movement  on  foot  in  favor  of  a  certain  public  under- 
taking. On  the  side  you  are  informed  that  so  and 
so  and  so  and  so  (local  politicians)  have  made  large 

9 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Speculations  in  view  of  precisely  this  project.  The 
municipality,  for  its  part,  may  placidly  obey  the  hid- 
den impulse.  If  not,  the  parties  interested  proceed  to 
take  a  more  or  less  direct  part  in  the  struggle.  In  any 
event  the  simple,  hoodwinked  people  become  very  en- 
thusiastic for  or  against  the  issue. 

In  1902  the  City  of  Birmingham  decided  to  submit 
a  bill  to  Parliament  which  would  permit  it  to  take 
over  and  operate  its  urban  tramway  system.  A  refer- 
endum vote  was  taken.  Out  of  102,712  registered 
electors,  only  15,742,  or  15  per  cent,  of  the  total  elec- 
torate, voted.  Moreover,  according  to  the  Daily 
News,  "high  officials  of  the  town  led  gangs  of  munici- 
pal workmen  to  the  polls."  ^  Major  Leonard  Darwin 
says  in  this  connection  : 

"The  more  energetic  and  able  they  (the  officials) 
are,  the  more  likely  will  they  be  to  view  with  favor 
new  projects  connected  with  municipal  trade."  ^  In 
the  end,  perhaps,  such  an  extension  of  the  official 
functions  will  mean  more  work  for  such  enthusiasts. 
But  their  influence  will  probably  be  greater,  and  con- 
ceivably even  doubled,  through  the  resulting  increase 
in  their  financial  importance. 

5.  The  promotors  and  leaders  of  movements  in  the 
direction  of  government  and  municipal  ownership  fre- 
quently resort  to  exciting  and  exploiting  the  so-called 
invidia  democratica,  or  democratic  jealousy,  one  of 
the  plagues  of  the  Roman  Republic,  and  always  in 

'  Raymond  Boverat,  Le  Socialisme  Municipal  en  Angleterre  et 
ses  Rcsultats  Financiers,  p.  444. 
^Municipal  Trade. 

ÏO 


MOTIVES  OF  PRIVATE  AS  AGAINST  PUBLIC  ENTERPRISES 

evidence  in  an  individualistic  state.  Men  who  are 
at  the  head  of  private  enterprises  are  denounced  as 
exploiting  their  fellow-citizens.  Their  profits — 
usually  exaggerated — are  quoted,  and  the  claim  is 
made  that  such  moneys  will  be  restored  to  the  people 
when  governments,  local  or  national,  provide  every- 
thing and  individuals  nothing. 

Was  the  object  of  the  purchase  of  the  Western 
railway  in  France  economy  in  expenditure  and  im- 
provement in  transportation  facilities?  Not  one  of 
those  who  demanded  and  voted  for  it  dared  to  make 
such  a  claim.  With  the  lines  belonging  to  the  state 
the  deputies  would  have  places  for  their  constituents, 
a  certain  right  of  political  interference  in  the  adminis- 
tration, and  hence  a  large  degree  of  electoral  influence. 
Resolutions  favoring  the  purchase  of  the  Western 
railway  had  been  rife  since  1902,  but  no  minister  of 
Public  Works  had  endorsed  them.  Immediately  after 
the  elections  of  1906,  however,  Georges  Clemenceau, 
then  Minister  of  the  Interior,  started  on  a  hunt  for  a 
program  which  would  be  Socialist  without  being  col- 
lectivist.  Socialism  is  the  present  phase  of  the  move- 
ment; collectivism  is  the  Socialist's  dream. 

Clemenceau  took  from  his  predecessors:  i.  Noon- 
day rest.  2.  Limitation  of  working  hours  and  a  col- 
lective labor  contract.  3.  The  income  tax.  4.  Labor 
pensions. 

But  he  was  also  anxious,  by  socializing  something, 
to  conciliate  the  Socialists  and  the  Radical  Socialists. 
He  therefore  selected  the  purchase  of  the  Western 
railway  as  suited  to  his  purpose.  Then,  in  order  to 
be  certain  that  the  afifair  would  go  through,  he  impli- 

11 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

cated  Louis  Barthou  in  the  affair,  in  the  latter's  ca- 
pacity of  minister  of  Public  Works,  aUhough  Bar- 
thou's  antecedents  did  not  point  to  him  as  especially 
fitted  to  carry  out  such  a  measure. 

6.  One  of  the  chief  incentives  to  the  establishment 
of  a  government  monopoly  is  the  hope  of  procuring 
resources  without  the  stigma  of  an  apparent  fiscal 
object  attached.  It  is  one  way  of  making  the  tax- 
payers pay  taxes  without  perceiving  that  they  are 
taxes.  As  a  matter  of  fact  they  are  simply  misrepre- 
sented taxes.  Appeals  of  their  promoters  to  the  moral 
and  hygienic  interests  of  the  nation,  in  order  to  effect 
the  desired  object,  are  equally  disingenuous. 

For  example,  the  alcohol  monopoly  in  Switzer- 
land was  submitted  to  the  people  as  designed  to  com- 
bat alcoholism,  while  putting  an  end  to  the  ohmgeld 
duties,  a  sort  of  internal  revenue  duty.  As  for  alco- 
holism, the  financial  history  of  the  individual  cantons, 
which  have  been  receiving  their  share  of  the  profits 
of  the  monopoly  for  the  purpose  of  fighting  it,  proves 
just  how  relative  has  been  the  attention  devoted  to 
the  eradication  of  that  particular  evil. 

But  there  was  still  another  motive,  although  it  has 
been  mentioned  only  in  conversation.  In  Switzerland 
every  quart  of  alcohol  is  produced  from  potatoes. 
Growers  found  that  the  distillers  were  buying  their 
potatoes  too  cheaply.  Therefore,  at  the  opportune 
moment,  the  Federal  government  increased  the  pur- 
chase price  of  domestic  alcohol,  saying  to  the  potato 
grower  :  "You  see,  we  have  increased  the  price  of 
alcohol.     Whereas,  in  Austria,  alcohol  costs  20  or  30 


MOTIVES  OF   PRIVATE   AS  AGAINST    PUBLIC   ENTERPRISES 

francs,  we  in  Switzerland  pay  more  than  80  francs 
for  it  ;  and  we  are  doing  so  in  order  that  you  can 
sell  your  potatoes  at  a  good  price.  In  other  words  we 
are  granting  you  a  subsidy." 

When  the  monopoly  of  alcohol  was  established  in 
Russia  it  was  repeated  in  every  key  that  the  object  in 
view  was  moral  and  not  financial.  It  was  established, 
in  the  first  place,  in  order  to  ensure  to  the  inouj'ik 
(peasant)  absolutely  pure  alcohol.  Emphasis  was 
placed  on  the  characteristic  retail  shops  of  the  gov- 
ernment, kept  by  officials  who  can  have  no  interest  in 
increasing  consumption.  There  is  neither  chair,  cork- 
screw, nor  glass  in  the  shop;  therefore,  the  moujik, 
after  buying,  must  go  elsewhere  to  drink. 

But,  in  19 1 2,  the  receipts  from  the  monopoly  on 
alcohol  were  estimated  at  763,990,000  roubles,  out  of 
a  total  income  of  2,896,000,000  roubles,  or  26  per  cent. 
It  is,  therefore,  easily  surmised  that  officials  charged 
with  the  sale  of  alcohol  would  be  held  to  a  strict  ac- 
count if  devotion  to  the  temperance  cause  should  hap- 
pen to  bring  a1)out  a  deficit  in  the  budget.  The  moral 
aspect  of  the  monopoly  is  completely  effaced  by  fiscal 
interest. 

M.  Augugneur  heads  a  local  and  national  owner- 
ship party.  Why  should  he  advocate  public  owner- 
ship? Simply  in  order  to  have  a  platform — a  reason 
for  party  existence.  The  future  of  municipal  or  gov- 
ernment undertakings  is  a  secondary  matter.  What  is 
necessary  is  an  issue  which  will  lead  to  political  action 
and  to  immediate  power. 

If  any  enterprise  inaugurated  by  a  mayor  or  by  a 

13 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

minister  is  difficult  and  useless  neither  the  mayor,  the 
minister,  the  municipal  councillors,  the  deputies,  nor 
the  senators  who  have  brought  it  into  being  will  be 
called  upon  to  bear  any  material  responsibility  for  it. 
The  taxpayers  of  to-day  and  to-morrow  must  assume 
the  entire  burden.  Sometimes  the  failure  of  an  un- 
dertaking involves  a  decrease  in  the  influence  of  the 
politicians  who  were  its  promoters.  But  frequently  it 
increases  their  importance  in  the  public  eye. 

The  risks  which  the  Freycinet  program  carried  with 
it;  the  uselessness  of  a  quantity  of  the  work  included 
in  it  ;  the  burdens  which  have  accrued  from  the  opera- 
tion of  railroads;  an  excess  of  30  per  cent,  in  the  con- 
struction of  navigable  ways  which  are  not  yet  fin- 
ished, all  this  has  in  no  way  injured  the  prestige  of 
the  author  of  that  program.  The  advocates  of  the 
purchase  of  the  Western  line  are  coping  cheerfully 
with  the  deceptions  it  has  engendered,  and  they  imag- 
ine— and  rightly — that  no  one,  or  almost  no  one,  has 
ever  placed  in  parallel  columns  their  promises  and 
the  actual   facts. 

Again,  had  M.  Barthou  conducted  a  private  business 
after  the  fashion  in  which  he  carried  through  the  pur- 
chase of  the  Western  road,  he  would  long  since  have 
been  branded  as  a  defrauding  bankrupt.  As  a  public 
official  the  state  has  rewarded  him  for  his  efforts  in 
this  direction  with  the  premiership  of  France. 

Conclusions. 

I,  Any  private  undertaking  has  a  definite  objective 
point — gain;  and  a  certain  test — gain  or  loss. 

14 


MOTIVES  OF   PRIVATE  AS  AGAINST   PUBLIC  ENTERPRISES 

2.  The  motive  behind  municipal  and  national  un- 
dertakings is  usually  political  or  administrative  in- 
fluence for  their  promoters. 

3.  The  promoters  of  public  undertakings  escape  all 
material  and — generally — all  moral  penalty. 


ÏS 


CHAPTER  IV 

GOVERNMENT    AND    MUNICIPAL    TRADING    OPERA- 
TIONS 

1.  The  Report  of  Gustave  Schelle  to  the  International  Sta- 

tistical Institute. — List  of  Public  Industrial  Operations. 
— Postal,    Telegraph    and    Telephone    Systems. — Mints. 

2.  Public    Trading    Enterprises    of    Denmark,    Switzerland, 

Holland,    Italy,     France,     Belgium,     Sweden,    Austria, 
Germany. 

3.  The  United  Kingdom  and  the  United  States. 

4.  The  London  County  Council. 

5.  The  Municipal  Activity  of  Russia. 

6.  New   Zealand. — Government   Socialism   More   Fully   De- 

veloped Than  in  Any  Other  Country. — Socialist  Enter- 
prises. 

7.  Nationalization  of  the  Soil  in  New  Zealand. 

8.  Government    and    Municipal    Trading    Operations    Re- 

stricted in  Scope. 

I.  When  zealots  in  the  cause  of  "a  transference  of 
trading  and  commercial  undertakings  to  ptiblic  bodies" 
declare  that  it  is  a  general  and  irresistible  movement, 
they  are  mistaking  their  hopes  for  an  accomplished 
fact.  Public  trading  enterprises  in  actual  existence  are 
relatively  few. 

During  the  session  of  the  International  Statistical 
Institute  of  1909,  at  the  suggestion  of  MM.  Arthur 
Rafïalovich   and   Gustave   Schelle,   a   committee   was 

16 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

appointed  for  the  purpose  of  collecting  statistics  re- 
garding state  and  municipal  trading  undertakings. 
The  members  of  this  committee  were:  Yves  Guyot, 
chairman  ;  Gustave  Schelle,  secretary,  and  MM.  Col- 
son,  Rafïalovich,  Fellner,  Nicolai  and  Hennequin. 
The  report  of  this  committee  was  presented  to  the 
session  of  the  International  Statistical  Institute  which 
met  at  The  Hague  in  191 1. 

The  industries  monopolized  by  nations  or  cities  ap- 
pear in  the  report  as  follows  :  The  postal  systems  in 
every  country  and  telegraphs  and  telephones  in  every 
country  except  the  United  States.  All  governments 
coin  money,  either  free,  as  in  England,  or  for  a  slight 
charge.  In  the  following  summary  we  will  not  speak 
of  these  four  utilities  unless  they  present  some  special 
characteristic  peculiar  to  the  country  under  consid- 
eration. 

2.  The  report  begins  with  Denmark.  It  is  gener- 
ally known  that  this  country  is  very  active  and  very 
highly  developed  industrially.  Its  population,  how- 
ever, is  smaller  than  that  of  the  city  of  Paris. 

Denmark  operates,  in  connection  with  its  army, 
twenty  public  enterprises,  employing  altogether  2,335 
people.  The  railway  system  comprehends  37  enter- 
prises, employing  4,797  people.  In  addition  to  these 
there  are  16  other  enterprises,  employing  279  people, 
and  including  a  dressmaking  establishment  and  a  work- 
shop attached  to  the  royal  theater. 

The  total  number  of  these  enterprises  is  thus  y^^, 
employing  7,411  people,  of  whom  7,166  are  laborers. 
But  the  majority  of  Danish  state  undertakings  are 

17 


WHERE   AND    WHY    PUBLIC   OWNEKSIIIP    HAS    FAILED 

only  semi-public  in  character.  The  principal  object  of 
the  factory  at  Usserod  is  the  manufacture  of  cloth 
for  the  Army  and  Navy,  but  it  has  a  retail  shop 
for  the  benefit  of  the  public.  The  powder  mill  of 
Frederiksvark  has  a  monopoly  of  the  manufacture 
of  powder.  The  three  ports  of  Helsingor,  Frederiks- 
havn,  and  Esbjerg  are  the  three  great  ports  of  the 
state.  The  royal  manufacture  of  porcelain  is  not 
counted  among  government  industries. 

As  for  the  towns  the  census  of  1906  gives  43  water 
works,  I  street  paving  enterprise,  2  embankment  en- 
terprises, I  dredging  undertaking,  2  construction  un- 
dertakings with  29  workmen,  i  shipyard,  i  combined 
gas  and  water  plant,  2  moulding  undertakings,  i  in- 
stallation of  electrical  apparatus,  8  plants  for  the 
production  and  distribution  of  electricity,  60  gas 
works,  2  wrecking  enterprises,  and,  finally,  i  chimney 
sweep  and  i  machinist,  each  of  whom  is  considered  as 
a  municipal  enterprise.  The  total  is  126  enterprises, 
employing  2,274  people,  or  an  average  of  18  persons 
each. 

In  Switzerland  the  state  alcohol  monopoly  buys  po- 
tato spirit  and  sells  it  again.  It  does  not  manufacture 
it.     The  state  both  owns  and  operates  its  railways. 

In  Holland  the  state  publishes  an  official  journal 
and  operates  the  Wilhelmina  and  Emma  pit  coal  mines. 
The  government  railways  are  operated  for  the  state 
by  a  private  company. 

For  Italy,  Giovanni  Giolitti,  then  minister  of  the 
Interior,    had    already    furnished    statistics    of    the 

18 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

principal  municipal  trading  undertakings  up  to 
1901,  in  a  report  presented  to  the  Chamber  of 
Deputies,  March  11,  1902.  The  report  lists  171 
slaughter  houses,  151  water  works  and  artesian 
wells,  24  plants  for  the  production  of  electrical 
energy,  20  public  laundries,  15  gas  works,  12  under- 
taking enterprises,  12  public  baths,  4  ice  plants,  3 
sewage  disposal  plants,  3  irrigation  enterprises,  2 
bakeries,  2  pharmacies,  and  a  few  other  less  important 
services.     The  railways  are  state-owned  and  operated. 

The  law  of  March  29,  1903,  enumerates  19  enter- 
prises which  municipalities  may  undertake.  Outside 
of  the  usual  services,  water,  gas,  electricity,  etc., 
we  might  mention  pharmacies,  mills  and  bakeries,  as 
"normal  regulators"  of  prices,  ice  plants,  public  bill 
posting,  drying  rooms  and  store  houses  for  corn,  the 
sale  of  grain,  seeds,  plants,  vines  and  other  arboreal 
and  fruit-bearing  plants. 

The  same  law  has  determined  the  manner  in  which 
local  governments  may  purchase  concessions  previously 
granted  to  private  interests.  They  must  pay  to  the 
owners  an  equitable  indemnity,  and  account  must  be 
taken  (a)  of  the  market  value  of  the  construction  and 
of  the  movable  and  immovable  equipment;  (b)  of  the 
advances  or  subsidies  made  by  the  local  government  ; 
the  registration  taxes  paid  by  the  concessionaires  ;  and 
the  tax  that  the  companies  were  able  to  pay  to  the 
towns  on  excess  business;  (c)  of  the  profit  lost  to  the 
concessionaires  through  the  purchase,  based  on  the 
legal  interest  rate  for  the  number  of  years  which  the 
franchises  have  still  to  run,  with  annual  sums  equal  to 

19 


Where  and  why  public  ownership  has  failed 

the  average  profits  of  the  five  years  last  passed  (not 
including  interest  on  capital). 

The  law  of  April  4,  1912,  established  a  life  insur- 
ance monopoly. 

The  report  of  the  Congress  of  the  Federation  of 
Municipal  Enterprises,  held  at  Verona,  May  21  and 
2.2,  19 10,  enumerates  74  special  public  enterprises,  31 
of  which  were  in  existence  before  the  law  of  1903. 
This  would  tend  to  prove  that  the  law  had  not  aided 
greatly  in  their  further  development. 

France  has:  i.  Fiscal  monopolies,  such  as  matches, 
tobacco  and  powder.  2.  Postal  system.  3.  Govern- 
ment railways,  comprising  the  system  bought  before 
the  Western  line  ;  the  Western  railway  ;  and  the  rail- 
way from  Saint  Georges  de  Gommiers  to  La  Mure,  in 
the  district  of  Isère,  the  operation  of  which  constitutes 
a  distinct  department  aside  from  that  of  the  other 
government  railways.  Little  is  known  concerning 
this  third  system. 

Other  enterprises  are  :  the  National  Printing  Office  ; 
the  official  journal  {Journal  Officiel)  ;  the  manufac- 
ture of  metals  and  coins;  the  manufacture  of  Sèvres 
porcelain;  the  manufacture  of  Gobelin  tapestry;  the 
manufacture  of  Beauvais  tapestry;  the  water  works 
of  Versailles  and  de  Marly;  stock  farms;  and  the 
baths  of  Aix-les-Bains. 

The  City  of  Paris  has  organized  several  commercial 
ventures.  In  1890  a  municipal  department  of  elec- 
tricity was  installed,  which  was  abandoned  in  1907. 
The  city  has  also  taken  full  control,  since  June  i,  1910, 

20 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

of  the  Belleville  cable  railroad.  In  1905  it  municipal- 
ized the  undertaking  service,  and  it  operates  a  stone 
quarry  for  the  benefit  of  the  city  streets.  These  are 
the  only  directly  managed  undertakings  of  the  City  of 
Paris.  A  mistake  was  made  in  becoming  a  share- 
holder in  a  gas  company.  In  the  case  of  water  the  city 
has  undertaken  to  construct  and  maintain  pumping 
stations  and  also  mains,  but  it  has  granted  to  a  private 
company  the  right  to  construct  branch  pipe  connec- 
tions, to  receive  subscriptions  and  to  collect  rents. 

The  Municipal  Council  of  Paris  has  leased  its  elec- 
trical supply  down  to  1940  and  also  its  transportation 
facilities,  both  surface  and  underground. 

Belgium  owns  and  operates  nearly  all  its  railways. 
It  runs  steamers  from  Ostend  to  Dover,  and  on  the 
canal  from  Anvers  to  the  port  of  Flanders. 

In  Sweden  the  state  owns  and  operates  the  rail- 
ways. 

In  Austria,  according  to  a  work  compiled  under 
the  supervision  of  J.  G.  Griiber,  by  Doctor  Rudolph 
Riemer,  secretary  of  the  Central  Bureau  of  Statistics, 
outside  of  the  customary  monopolies  the  state  controls 
fiscal  monopolies,  such  as  tobacco,  salt,  powder,  lot- 
teries, railways,  a  national  printing  office,  an  official 
journal,  docks,  stock  farms,  forests,  and  other  public 
lands  and  mines. 

Municipalities  which  M.  Schelle  has  not  listed  oper- 
ate gas  and  electric  plants,  undertaking  services,  baths, 
pawnshops,     horticultural     establishments,     slaughter 

21 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS   "FAILED 

houses,  savings  banks,  theaters,  docks,  hydro-electric 
works,  race  tracks,  tramways,  and  daily  newspapers. 

In  regard  to  Germany  M.  Schelle  had  received  no 
information  concerning  the  German  railways,  nor  the 
fiscal  mines  of  Prussia.  The  government  operates 
coal  mines  in  upper  Silesia,  the  districts  of  Deister  and 
Oberkirchen,  in  Westphalia,  and  in  the  district  of 
La  Saar.  These  mines  were  employing  91,671  work- 
ers in  1910.^ 

The  Prussian  government  also  produces  lignite, 
amber,  iron  ore  and  other  ores,  both  calcareous  and 
gypsum,  potash,  rock  salt  and  refined  salt,  and  oper- 
ates blast  furnaces  and  foundries  of  metals  other  than 
iron.  These  various  industries  employ  12,759  work- 
ers, which  makes  for  the  two  classes  enumerated  a 
total  of  104,430  persons  employed.  The  state  also 
operates  the  Prussian  bank.^ 

3.  The  report  does  not  take  up  the  public  under- 
takings of  the  United  Kingdom,  or  of  the  United 
States.  The  results  of  the  investigation  made  by  The 
National  Civic  Federation  of  America,  for  the  pur- 
pose of  discovering  whether  the  attempts  at  munici- 
palization made  in  Great  Britain  ought  to  be  imitated 
in  the  United  States,  were  published  in  1907  (3  vol- 
umes). However,  the  information  given  is  most  in- 
complete. 

In  Great  Britain  the  telephone  was  not  taken  over 

^  See  Circulaire  du  Comité  des  Houillères,  February  20,  1913. 
'Arthur  Raffalovich  in  Journal  des  Économistes,  October,  1912. 

22 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

by  the  state  until  1912.  In  the  United  States  the 
telegraph  and  telephone  are  still  under  private  man- 
agement. 

The  Postmaster-General  of  the  United  States,  in  his 
report  of  19 12,  recommended  the  annexation  of  the 
telegraph  service.  But  President  Taft,  in  transmitting 
the  recommendation  to  Congress,  declared  that  he  by 
no  means  favored  the  suggestion.^ 

However  the  President  complimented  the  Post- 
master-General with  having  brought  about  economy 
in  his  department.  But,  as  the  Journal  of  Commerce 
observed,  to  bring  about  economy  in  a  government 
department,  and  to  ensure  an  economic  administration 
of  a  trading  enterprise,  are  two  very  different  things. 

In  the  British  Isles  municipal  enterprises  have  been 
multiplied,  following  the  Public  Health  Act  of  1875, 
which  act  granted  to  sanitary  districts  authority  to 
establish  water  and  gas  works,  and  the  Municipal  Cor- 
porations Act  of  1882,  which  codified  the  municipal 
law.  This  latter  act  gives  to  municipalities  the  right 
to  spend  their  income  ;  but,  in  order  to  contract  loans 
and  make  purchases  or  sales  of  land,  they  must  obtain 
permission  through  the  medium  of  private  acts  of 
Parliament. 

The  industrial  undertakings  of  British  towns  are 
much  less  important  than  might  be  supposed  from 
the  rhapsodies  they  inspire  in  government  ownership 
fanatics.  In  proof  of  this  statement  it  is  sufficient  to 
enumerate  the  industrial  operations  of  the  London 
County  Council. 

'  Journal  of  Commerce,  New  York,  February  24,  1912. 

23 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

4.  The  London  County  Council  was  established  in 
1888.  From  1888  to  1894  and  from  1898  to  1906  it 
called  itself  progressive.  Its  progress  consisted  chiefly 
in  seizing,  by  right  of  its  own  authority,  the  greatest 
possible  number  of  public  utilities.  However,  the 
distribution  of  the  London  water  supply  is  not  con- 
trolled by  the  Council,  despite  all  its  efforts  to  obtain 
such  control.  The  control  of  water  was  given  by  the 
law  of  1902  to  the  Metropolitan  Water  Board,  com- 
posed of  66  representatives  of  the  various  local 
authorities  comprised  within  the  area  of  distribution, 
which  is  not  less  than  537  square  miles,  or  5  times  that 
of  London.  The  Board  has  the  right  to  levy  taxes, 
and  it  has  acquired,  by  private  contract  and  without 
opposition,  the  holdings  of  8  companies  for  a  total  of 
about  £1,900,000  ($9,253,000).  It  has  spent  one 
million  and  a  half  pounds  sterling  ($7,305,000)  in 
public  works.  In  1904  it  furnished  81,823,000,000 
gallons  of  water  to  7,000.000  people,  or  32  gallons  a 
day  per  capita,  53  per  cent,  of  which  comes  from 
the  Thames,  25  per  cent,  from  the  river  Lea,  and  22 
per  cent,  from  springs  and  wells. 

The  London  docks  were  constructed  by  private 
companies.  In  1907  the  government  introduced  a  bill 
to  take  over  these  enterprises  from  the  companies, 
which  received  an  indemnity  of  £22,368,916 
($108,936,000)  from  the  Port  of  London.  This  lat- 
ter corporation,  presided  over  by  Lord  Devonport, 
who  showed  himself  so  energetic  in  the  strike  of  the 
dock  laborers,  is  composed  of  thirty  members,  ap- 
pointed by  the  government,  by  the  municipal  authori- 
ties and  by  individual  merchants.     The  Port  of  Lon- 

24 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

don  is  SO  independent  of  the  London  County  Council 
that  the  latter  refused  to  guarantee  the  loans  that  the 
former  was  forced  to  contract  in  order  to  pay  the 
indemnity  to  the  dock  companies. 

Neither  does  the  London  County  Council  furnish 
gas  to  the  inhabitants  of  London.  The  companies 
manufacturing  gas  were  organized  by  private  capital. 
In  1855  there  were  20  of  these,  but  by  i860  the  num- 
ber had  been  reduced  to  13.  Subsequently  there  were 
several  mergers,  which  necessitated  private  bills.  Thus 
a  way  was  opened  for  an  intervention  which  estab- 
lished a  scale  of  dividends  proportioned  to  the  price  of 
gas.  The  dividend  rate  was  fixed  at  4  per  cent.  If 
there  is  a  decrease  in  the  price  of  gas  the  dividend  can 
be  increased  is  5d  (34  cents)  for  each  penny  of  the  de- 
crease in  price,  which  was  then  fixed  at  3s  2d  (76 
cents)  for  1,000  cubic  feet  of  gas  of  14  candle-power. 
If  there  is  an  increase  in  the  price  the  dividend  is 
diminished  in  the  same  proportion.  London  is  lighted 
by  two  gas  companies.  One  company  sells  its  gas  at  a 
rate  of  2s  yd  (62  cents).  The  London  County  Coun- 
cil has  only  the  right  of  fixing  the  quality. 

The  Electric  Lighting  Act  of  1882  provided  that 
local  governments  could  purchase,  at  the  end  of  21 
years,  any  electrical  enterprise  established  within  their 
territories.  The  law  of  1888  extended  the  purchase 
period  to  the  end  of  42  years. 

Several  local  governments  of  London  have  estab- 
lished electrical  service  in  a  number  of  different 
ways.  In  16  out  of  29  of  the  local  districts 
there  are  municipal  plants,  but  they  represent  a 
service  over  only  553^   square  miles,  while  the  elec- 

25 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

trical  companies  supply  a  surface  of  643/^  square 
miles.  In  greater  London  the  municipal  plants  sup- 
ply 167  square  miles,  and  19  companies  331  square 
miles. 

The  London  County  Council,  in  1907,  planned  U) 
create  an  electric  central  station  supplying  a  district 
of  451  square  miles;  but,  when  the  "progressive  ma- 
jority" of  the  London  County  Council  was  replaced 
by  a  "moderate  majority,"  the  plan  was  abandoned. 
Later  Parliament  passed  a  bill,  demanded  by  8  out  of 
the  10  existing  companies,  permitting  them  to  consoli- 
date their  systems.  But  the  London  County  Council 
will  still  have  the  right  to  buy  them  out,  in  193 1,  or  at 
the  end  of  any  subsequent  ten-year  period. 

In  fact,  the  Council  has  exercised  its  authority  ac- 
tively only  in  the  direction  of  operating  tramways. 
In  1870  the  Tramway  Act  authorized  a  local  govern- 
ment, or  any  private  company  which  had  obtained  its 
consent,  to  ask  for  a  private  bill  in  order  to  establish 
a  line.  The  Metropolitan  Board  of  Works  of  London 
granted  several  companies  authority  to  establish  lines. 
In  1894  the  Council  demanded  the  right  to  purchase 
these.  In  1898  it  bought  out  two  companies,  one 
of  which  possessed  43  miles  of  tramway  lines  in 
the  north  of  London.  The  Council  left  to  the  com- 
pany the  right  of  operation  during  14  years. 
In  1898  the  operation  of  the  other  tramway  lines  was 
begun.  The  Council  bought  up  the  lease  of  the  other 
companies  in  1906.  It  has  now  136  miles  of  tramway 
lines,  and  its  receipts  are  diminishing. 

The  London  County  Council  likewise  attempted  to 

26 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

operate,  beginning  with  1906,  a  line  of  boats  on  the 
Thames.  The  first  two  years  the  undertaking  resulted 
in  a  deficit  of  £90,683  ($441,626).  The  service  was 
abandoned  one  or  two  years  later.  The  30  boats, 
which  had  cost,  in  1906,  £7,000  each,  were  sold  in  a 
lot  for  £18,204.  The  Council  also  took  upon 
itself  the  demolition  and  reconstruction  of  a  cer- 
tain number  of  cheap  lodgings.  Therefore,  in  the 
way  of  actual  municipal  industrial  services,  it  has 
managed  a  boat  line  upon  the  Thames,  demolished 
and  reconstructed  cheap  lodgings,  and  is  now  operat- 
ing tramways. 

The  partisans  of  public  operation  say,  none  the  less, 
that,  "in  principle,  municipal  ownership  has  been  ac- 
cepted." Only  those  who  are  honest  add  "but  public 
opinion  has  confined  it  within  very  narrow  limits.'" 
Moreover,  the  elections  of  191 2  have  kept  the  progres- 
sives in  the  minority.^ 

5.  According  to  an  article  in  the  Fortnightly  Re- 
view, of  January,  1905,  it  is  in  Russia  that  local  pubhc 
ownership  and  operation  have  been  most  widely  ex- 
tended. The  sale  of  agricultural  implements,  medi- 
cines, magic  lanterns,  translations  of  Molière  and  Mil- 
ton, the  expurgated  novels  of  Dostoiewski,  sewing 
machines  and  meat  are  among  Russian  public  enter- 
prises. It  is  said  also  that  it  is  useless  for  cities  to 
demand  subsidies  from  the  government.  The  stock 
answer  of  the  administration  to  all  requests  for  aid  is  : 
Municipalise.     This  advice  is  easy  and  costs  nothing. 

*  Claude  W.  Mullins,  L'Activité  Municipale  de  Londres,  Revue 
Économique  Internationale,  1910. 

27 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

6.  Ownership  and  operation  on  a  national  scale 
have  been  most  widely  developed  in  New  Zealand. 
The  constitution  of  1852  gave  to  legislators  of  that 
country  all  possible  authority  without  other  restric- 
tion than  "to  do  nothing  repugnant  to  the  English 
law."  Nor  are  their  powers  limited,  as  in  the  United 
States,  by  a  supreme  court. 

New  Zealand  is  isolated.  It  has  no  competitors.  Jt 
has  large  undeveloped  resources.  It  has  a  territory 
of  271,300  square  kilometers  (104,344  square  miles), 
or  more  than  half  that  of  France,  and  a  population 
of  1,044,000  people,  or  4  inhabitants  per  square  kilo- 
meter (  10  inhabitants  per  square  mile).  Naturally  the 
experiments  of  a  restricted  population,  distributed 
over  a  vast  area,  have  not  the  same  importance  as 
those  attempted  by  a  population  of  several  million  in- 
habitants concentrated  within  narrow  boundaries. 

In  a  work  entitled  State  Socialism  in  New  Zealand  ^ 
Messrs.  Le  Rossignol  and  Stewart  give  us  a  complete 
picture  of  the  Socialist  enterprises  which  have  been 
attempted  there. 

Most  of  the  soil  was  originally  government  land.  As 
we  shall  see  further  on,  the  government  has  not  re- 
tained possession  of  it  for  the  purpose  of  exploit- 
ing it. 

The  real  development  of  governmental  activity  is 
chiefly  due  to  the  energy  of  one  man.  Sir  Julius  Vo- 
gel.  At  his  instance  a  government  life  insurance  sys- 
tem was  established  in  1869.     In  1870  he  outlined  a 

^  State  Socialism  in  New  Zealand,  by  James  Edward  Le 
Rossignol,  Professor  of  Economics  in  the  University  of  Denver, 
and  William  Downie  Stewart,  Barrister  at  Law.  Dunedin,  New 
Zealand,  i  volume  in  i2mo,  George  C.  Harrop  &  Co.,  London. 

28 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

vast  policy  of  public  works,  calling  for  an  expenditure, 
in  the  course  of  lo  years,  of  £10,000,000  ($48,700,- 
000),  a  sum  which  was  actually  doubled  within  that 
period.  In  1876  he  abolished  provincial  boundary 
lines,  took  over  the  land  and  the  railways,  and  bur- 
dened the  state  with  a  fully  developed  administrative 
organization,  the  expenses  of  which  were  paid  for  by 
taxation,  and  carried  out  only  with  the  help  of  loans 
and  a  heavy  debt. 

In  1879  New  Zealand  went  through  a  crisis  which 
would  have  ruined  her  if  she  had  not  been  saved  by 
the  application  of  refrigeration  to  the  transportation 
of  meat.  Even  with  that  help  it  took  her  16  years 
to  recover, 

I  shall  not  speak  here  of  the  social  legislation  in- 
troduced by  William  Pember  Reeves,  from  1890  to 
1895,  which  has  frequently  been  remodeled. 

New  Zealand  has  owned  the  telegraph  since  1865; 
the  railways  since  1876;  the  telephone  since  1884. 
National  coal  mining  and  accident  insurance  were 
taken  up  in  1901,  and  fire  insurance  in  1903,  at  rates 
which  render  any  competition  impossible.  From  time 
to  time  the  government  has  undertaken  the  operation 
of  small  industries,  such  as  the  purchasing  of  patents 
for  the  prussic  acid  process,  a  right  to  which  the 
state  leases  to  miners  for  a  certain  fee.  The  man- 
agement of  the  oyster  beds  of  Auckland,  the  estab- 
lishment of  fish  hatcheries,  the  stocking  of  the  rivers 
with  trout,  and  the  establishment  of  resorts  for  tour- 
ists and  invalids  are  also  among  New  Zealand  govern- 
ment enterprises. 

But,  although   New  Zealand  represents  the  maxi- 

29 


WHERE-    AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

mum  of  effort  in  the  way  of  Socialist  enterprises, 
few  industries  are  directly  managed  by  the  govern- 
ment. 

"Scarcely  a  month  passes,"  says  Mr.  Guy  H.  Schole- 
field,  "witiiout  some  convention  passing  a  cheerful  reso- 
lution demanding  that  the  government  should  step  in  and 
operate  some  new  industry  for  the  benefit  of  the  public. 
Now  it  is  banking  ;  to-morrow  bakeries  ;  over  and  over 
again  some  moderate  reformers  have  called  upon  the 
government  to  become  controllers  of  the  liquor  traffic  ; 
once  upon  a  time  it  was  importuned  to  become  a  whole- 
sale tobacco-seller  ;  more  than  once  to  purchase  steamers 
to  fight  the  supposed  monopoly  of  existing  lines."  ^ 

"But,"  say  Le  Rossignol  and  Stewart,  "notwith- 
standing these  demands,  the  feeling  seems  to  be 
growing  that  the  government  should  not  move  too 
rapidly  in  the  direction  of  State  Socialism." 

7.  In  nationalization  of  the  soil  New  Zealand  has 
had  an  experience,  the  more  interesting  in  that  most 
of  the  soil  was  once  government  land.  Ought  the 
state  to  have  conserved  its  interest  in  the  land,  or  was 
its  action  wise  in  transforming  it  into  private  prop- 
erty ?  The  following  facts  regarding  this  question  are 
to  be  found  in  that  remarkable  work,  State  Socialism 
in  New  Zealand,  from  which  I  have  already  quoted. 

The  Hon.  William  Rolleston,  who  became  minister 
of  Public  Lands  in  1879,  held  that  one-third  of  the 
crown  lands  ought  to  be  leased  in  perpetuity  for  a 
rent  of  5  per  cent,  of  the  value  of  land,  with  a  revalu- 

*  New  Zealand  and  Evolution,  page  58. 

30 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

ation  every  21  years.  The  resulting  resources  might 
be  applied  to  education. 

The  Upper  Chamber  granted  the  right  of  purchase 
at  the  value  of  the  prairie  land,  or  £1  per  acre,  after 
any  prospective  property  holder  should  have  cultivated 
one-fifth  of  his  claim.  Socialist  legislation  devel- 
oped when  the  Liberal  party,  having  acquired  a 
majority  in  the  elections  of  December  5,  1890, 
came  into  power  on  the  strength  of  two  issues, 
agitation  against  the  great  property  holders,  and 
agitation  of  workmen  whose  salaries  had  fallen 
since  1879  ^"^  who,  in  the  month  of  November,  had 
organized  an  unsuccessful  strike. 

John  Ballance,  head  of  the  Cabinet  in  1891,  and 
John  McKenzie,  minister  of  Public  Lands,  were  ardent 
partisans  of  government  and  property  reform.  To- 
gether they  put  in  force  five  acts,  one  after  the  other, 
which  have  since  undergone  several  modifications. 
Ballance,  also  a  partisan  of  nationalization  of  the 
soil,  was  anxious  that  one-third  of  its  lands  should 
remain  under  the  control  of  the  state,  to  be  leased 
by  it,  however,  with  periodic  revaluation.  His  plan 
fell  through.  McKenzie  granted  leases  for  999  years 
at  a  fixed  rental  of  4  per  cent,  on  the  capital  value 
of  the  land  at  the  time  the  lease  was  taken  up,  with- 
out revaluation.  The  area  which  could  be  held 
by  one  man  was  limited  to  640  acres  for  first- 
class  land,  and  2,000  acres  for  second-class  land. 
The  system  received  the  name  of  "the  eternal  lease." 
At  this  rate  of  lease,  the  government  would  lose  more 
by  way  of  land  tax  than  it  got  by  way  of  rent. 

But,  at  the  end  of  10  years,  the  perpetual  tenants 

31 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS   FAILED 

began  to  ask  for  the  right  to  buy  the  freehold  of  their 
properties.  The  Labor  party  was  constantly  proposing 
a  revaluation  of  rents.  In  1907  the  right  of  purchase 
was  recognized,  but  under  conditions  of  valuation 
which  provoked  the  strongest  resentment.  The  ten- 
ants maintained  that  the  state's  interest  in  the  land 
was  only  the  capitalized  rental  of  4  per  cent,  on  the 
original  value  of  the  land. 

The  lease  in  perpetuity  was  abolished  by  the  Act 
of  1907.  However,  under  this  system  of  leasing, 
which  had  been  in  force  for  15  years,  over  two 
million  acres  of  the  best  land  in  the  colony  had 
been  parted  with.  In  the  place  of  the  "eternal 
lease"  was  enacted  the  "renewable  lease,"  a  lease  for 
66  years,  with  provision  for  valuation  and  renewal  at 
the  end  of  the  term  with  reappraised  rent.  But  the 
public  lands  can  always  be  sold  immediately  on  the 
occupation-with-right-of -purchase  system.  It  is  there- 
fore a  mistake  to  believe  that  the  government  of  New 
Zealand  owns  all  its  soil. 

On  March  21,  1906,  the  total  area  of  66,861,440 
acres  was  held  roughly  as  follows  : 

Freehold    18,500,000 

Leased  from  Crown 17,000,000 

Held  by  natives 8,250,000 

Reserved  for  educational  purposes  and  national 

parks    12,250,000 

Unfit  for  use 7,000,000 

Not  yet  dealt  with 3,300,000 

It  is  estimated  that  63  per  cent,  of  New  Zealand 
families  own  property  of  £100  and  above;  and  it  is 
probable  that  75  per  cent,  of  the  families  own  some 

32 


GOVERNMENT    AND    MUNICIPAL    TRADING    OPERATIONS 

kind  of  property.  A  number  of  small  properties  are 
exempt  from  taxation.  Those  who  are  without  prop- 
erty are  young  people  earning  large  salaries  who,  with 
health  and  a  fair  chance,  will  achieve  a  good  position 
in  life. 

The  land  laws  have  not  only  increased  the  number 
of  proprietors,  but,  although  they  have  had  a  Socialist 
aim,  they  have  actually  brought  about  anti-socialist 
results,  since  they  serve  to  encourage  the  system  of 
private  ownership. 

The  Labor  party  advocates  nationalization  of  the 
soil  ;  but  the  tenants,  supported  by  the  freeholders, 
continue  to  demand  the  right  of  transforming  their 
leases  into  property  holdings.  At  a  crisis  they  would 
insist  upon  a  lowering  of  the  rent.  One  witness,  in 
1905,  made  this  profound  observation  before  the 
Land  Commission  : 

"I  believe  in  the  freehold  because,  in  times  of  trouble, 
the  freeholder  is  the  man  to  whom  the  state  will  look  ; 
and  the  leaseholder  is  the  man  who,  in  times  of  trouble, 
will  look  to  the  state." 

Messrs.  Le  Rossignol  and  Stewart,  the  authors  of 
State  Socialism  in  New  Zealand,  conclude: 

"It  is  not  easy  to  show  that  New  Zealand  has  derived 
any  benefit  that  could  not  have  been  obtained  from  free- 
hold tenure  combined  with  taxation  of  land  values." 

Conclusions 

8.  Except  in  the  United  States  the  telegraph 
and  telephone  systems  are  nationally  owned  and  op- 

33 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

erated.  The  coining  of  money  is  also  a  function  of 
governments.  The  railways  are  government  owned, 
either  wholly  or  in  part,  in  France,  Germany,  Aus- 
tria-Hungary, Italy,  Denmark,  Sweden,  and  Belgium, 
but  the  extent  of  the  private  systems  is  greater  than 
that  of  government  lines. 

Industrial  operation  by  governments  and  munici- 
palities is  still  very  limited  in  scope.  Nevertheless, 
it  is  already  sufficiently  widespread  to  make  a  con- 
clusion possible  as  to  whether  the  dreams  of  its  ad- 
vocates are  being  materialized,  or  their  promises  ful- 
filled. 


34 


BOOK   II 

FINANCIAL    RESULTS    OF    GOVERN- 
MENT   AND    MUNICIPAL 
OWNERSHIP 

CHAPTER  I 

BOOKKEEPING  IN  STATE  AND  MUNICIPAL  TRADING 
ENTERPRISES 

1.  Report  of  Gustave  Schelle  to  the  International  Statisti- 

cal Institute. — Denmark. 

2.  Receipts  and  Expenses   of   Public  Operation  in  France; 

Costs  of  Construction. — Receipts  and  Expenses  Out- 
side of  the  Budget. — Special  Accounts. — Capital 
Charges. 

3.  British    Municipalities.  —  Belgium.  —  Sweden.  —  City    of 

Paris. 

4.  Austria. 

5.  Conclusions. — Attempts    to    Organize    Special    Accounts 

for  Government  and  Municipal  Trading  Enterprises 
Have  Failed.  They  Are  Incompatible  with  a  Homo- 
geneous Budget.  Sane  Budget  Regulations  and  Public 
Operation  of  Trading  Enterprises  Are  Contradictions  in 
terms. 

I.  I  have  already  quoted  from  the  report  to  the 
International  Statistical  Institute,  compiled  by  Gus- 
tave Schelle,  former  minister  of  PubHc  Works,  where- 

35 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

in  he  discusses  the  financial  situation  of  the  vari- 
ous state  and  municipal  trading  enterprises,  from 
which  he  has  received  reports,  with  all  the  authority 
of  his  official  position,  and  with  a  mind  which  has 
remained  both  alert  and  independent  throughout  his 
administrative  career.  The  difficulties  in  the  way  of 
estimating  and  comparing  the  value  of  such  enter- 
prises are  very  great. 

In  Denmark,  for  example,  railway  outlays  for  pen- 
sions and  general  administration  and  inspection  costs 
are  borne  by  the  railroads  themselves.  For  other 
enterprises  such  costs  are  met  by  the  general  budget. 

Before  1904  and  1905  the  postoffice  and  the  tele- 
graph yielded  no  net  proceeds.  In  1908- 1909  this 
was  also  true  of  the  mint. 

No  report  is  made  regarding  the  interest  charges 
upon  loans  for  the  establishment  of  such  enterprises. 

In  1908-1909  the  results  of  municipal  operation  of 
gas,  electricity  and  water  were  as  follows  : 

Copenhagen 

Plants  Capital,  Net    Proceeds, 

Crowns  Crowns 

Gas   4  30,636,000  3,247,000 

Electricity    5  14,451,000  3,490,000 

Water    6  12,392,000  632,000 

Provincial  Cities 

Gas    57  13,144,000  1,640,000 

Electricity  17  4,727,000  450,000 

Water   50  10,873,000  839,000 

In  Holland,  according  to  information  furnished  by 
M.  Methorst,  director-in-chief  of  the  Central  Bureau 
of  Statistics,  the  cost  of  constructing  the  postoffice, 
telegraph  and  telephone  systems  amounted,  on  Janu- 

36 


BOOKKEEPING  IN  STATE  AND   MUNICIPAL  ENTERPRISES 

ary  ii,  1909,  to  24,854,000  florins  ($9,941,000). 
This  capital  bears  an  interest  charge  in  favor  of  the 
public  treasury  of  y/2  per  cent.,  for  the  systems  were 
established  by  means  of  public  funds.  Repayments 
are  made  periodically  at  a  rate  varying  from  i  to 
123/2  per  cent.  The  enterprise  has  a  special  double 
entry  system,  and  no  account  is  taken,  in  reckoning 
up  receipts,  of  either  free  railroad  transportation  or 
official  correspondence. 

The  funds  for  the  operation  of  the  Wilhelmina  and 
Emma  mines  are  supplied  by  the  budget. 

No  information  is  given  in  the  report  concerning 
the  financial  results  of  municipal  enterprises  in  Italy. 

2.  I  quote  literally  the  observations  of  M.  Schelle 
concerning  France: 

A.  Receipts  and  Expenses  of  Operation: 

"In  the  case  of  the  mints,  the  National  Printing  Office 
and  the  state  railroads,  the  receipts  and  expenses  of  op- 
eration are  placed  opposite  each  other  in  budgets  an- 
nexed to  the  general  budget,  and  the  difference  in  gain 
or  loss  is  indicated  only  in  this  latter  budget.  The  rec- 
ords of  expenditures,  however,  as  well  as  of  receipts,  are 
incomplete. 

"In  the  case  of  the  fiscal  monopolies,  the  postal  service 
and  the  official  journal,  the  receipts  of  operation  are  in- 
cluded in  the  general  receipts  of  the  general  budget,  while 
the  expenses  are  charged  to  the  department  under  whose 
jurisdiction  the  enterprise  may  happen  to  be,  without 
any  comparison  being  made  between  receipts  and  expen- 
ditures. 

37 

238499 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"As  for  the  other  and  less  important  industrial  enter- 
prises, the  provisions  of  the  general  budget  furnish  no  in- 
dication whatever  of  their  condition.  Tentative  receipts 
are  mixed  with  the  receipts  of  other  enterprises  under 
different  headings. 

"Sometimes  the  expenses  are  deducted  from  the  gross 
receipts,  and  the  net  proceeds  alone  figure  in  the  budget  ; 
sometimes  they  are  included  in  the  expenditures  of  the 
department  concerned,  now  and  then  without  being  in 
evidence.  Information  on  the  subject  of  these  enter- 
prises is  impossible  except  in  the  final  accounts." 

B.  Costs  of  Construction  : 

"The  costs  of  construction,  in  the  case  of  certain  enter- 
prises, are  so  mixed  in  the  accounts  with  other  expenses 
as  to  make  it  utterly  impossible  to  disentangle  them. 
Even  where  enterprises  have  been  made  the  subject  mat- 
ter of  the  budgets  called  annexes,  the  budget  documents 
and  the  final  accounts  for  each  year  indicate  only  the 
increase  in  the  expenses  to  be  incurred  during  the  year 
under  consideration,  without  regard  to  the  expenses  of 
former  years.  In  order  to  get  at  the  amount  of  capital 
employed,  it  is  necessary  to  examine  the  final  accounts  of 
all  the  years.  The  resulting  labor  sometimes  recalls  that 
of  the  Benedictines,  and,  moreover,  is  far  from  always 
yielding  satisfactory  results,  whether  by  reason  of  the 
antiquity  of  the  expenses  or  the  impossibility  of  disen- 
tangling them." 

C.  Receipts  and  Expenses  Outside  of  the  Budget: 

"Government  undertakings  keep  no  daily  record  of  the 
requisitions  made  on  them  by  other  departments,  so 
that  important  financial  transactions  do  not  appear. 

"Certain  utilities  profit  gratuitously  from  services  ren- 

38 


BOOKKEEPING  IN   STATE  AND  MUNICIPAL  ENTERPRISES 

dered  them  by  other  public  or  quasi-public  enterprises; 
thus  the  postal  and  telegraph  departments  pay  the  rail- 
roads for  but  a  small  share  of  the  services  which  they 
receive  from  them. 

"Public  enterprises  do  not  pay  rent  for  the  use  of 
government  property,  for  the  real  estate  they  occupy, 
nor  are  they  charged  with  the  materials  they  use.  On 
the  other  hand,  the  National  Printing  Office  includes 
among  its  receipts,  at  a  rate  which  is  generally  considered 
high,  the  amount  of  work  which  it  does  for  other  depart- 
ments. It  does  riot  include  among  its  expenses,  however, 
the  interest  on  the  capital  sunk  in  the  buildings  in  which 
it  is  installed. 

"The  postal  and  telegraph  facilities  granted  to  minis- 
ters and  various  public  departments  do  not  figure  among 
the  receipts  of  the  postal  enterprises. 

"Finally,  among  the  annual  expenses  of  the  post  and 
telegraph  offices  are  included  the  subsidies  paid  to  packet 
boats  prompted,  at  least  in  part,  by  considerations  alto- 
gether foreign  to  the  mail  service." 

D.  Special  Accounts: 

"When  an  enterprise  possesses  a  technical  equipment 
or  a  stock  of  merchandise,  no  document  ever  shows  the 
true  value  of  such  equipment. 

"Exceptions  to  the  above  are  the  special  accounts 
published  at  the  close  of  each  fiscal  year:  ist,  in  the 
match  and  tobacco  monopolies  ;  2d,  in  the  case  of  the 
state  railroads.  However  the  value  assigned  in  these  spe- 
cial accounts  to  stock  and  equipment  is  not  a  commercial 
value.  It  is  a  simple  difference  between  the  expenses  of 
purchase  and  manufacture  and  the  proceeds  of  actual 
sales. 

"Moreover,  the  fixed  capital,  buildings,  real  estate,  etc., 

39 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

of  the  enterprises  enter  into  these  accounts  in  the  same 
manner  as  the  stock  of  manufactured  products,  so  that 
it  is  impossible  to  get  at  the  capital  really  involved. 

"Finally,  the  amount  realized  from  sales  of  real  es- 
tate, when  there  are  any,  is  not  deducted  from  the  capi- 
tal, such  sales  being  made  by  the  Government  Lands  De- 
partment. 

"The  accounts  of  the  Government  Railroad  Depart- 
ment published  each  year  are  no  more  satisfying.  State- 
ments as  to  the  costs  of  construction  are  to  be  found 
among  them,  but  these  include  only  those  expenses  con- 
tracted directly  by  the  department,  and  no  mention  is 
made  of  the  very  considerable  expenditures  which  are 
covered  by  the  budget  of  the  ministry  of  Public  Works. 

"The  Statistique  des  Chemins  de  Fer  is  the  only  docu- 
ment which  gives  an  approximate  idea  of  the  actual  costs 
of  construction  of  the  state  railroads  and  that  of  the 
small  line  of  Saint  Georges  de  Gommiers  à  La  Mure." 

E.  Capital  Charges  : 

"It  is  not  sufficient  to  know  the  amount  of  actual  capi- 
tal invested  in  an  industrial  enterprise  in  order  to  be  able 
to  form  a  correct  judgment  as  to  its  management.  It 
is  also  necessary  to  be  informed  as  to  the  capital  charges. 
Exact  computation  is  impossible  unless  the  expenses 
relative  to  each  enterprise  have  been  covered  by 
special  loans.  We  must  be  content,  therefore,  with  an 
approximation  difficult  to  make  at  this  late  day,  because 
no  care  has  been  taken  to  make  such  an  estimate  each 
year  since  the  enterprises  were  established.  In  order  to 
make  any  progress,  it  would  be  necessary  to  estimate 
the  applicable  rates  based  on  the  price  of  government 
bonds  or  of  bonds  guaranteed  by  the  government  at  the 
time  when  the  various  construction  expenses  were  in- 

40 


BOOKKEEPING  IN  STATE  AND   MUNICIPAL  ENTERPRISES 

curred.  Expenses  for  building  materials,  etc.,  and  for 
the  installation  and  equipment  of  the  various  government 
enterprises  have  been  a  burden  upon  the  Treasury  since 
that  date.  This  is  evident  in  the  case  of  the  costs  of  con- 
struction defrayed  with  funds  from  loans  not  yet  paid 
off.  But  it  is  true  also  of  expenses  paid  for  in  this  or 
that  year  out  of  the  ordinary  resources  of  the  budget. 
These  expenses  may  not  be  considered  as  paid  off  while 
a  perpetual  public  debt  exists,  even  though  resources  are 
at  hand  which  might  have  been  employed  toward  their 
extinction." 

3.  The  municipalization  of  public  utilities  has  con- 
siderably increased  the  expenses  and  debts  of  British 
local  governments.  M.  Schelle  declares,  however, 
that  he  has  been  unable  to  obtain  the  data  necessary 
to  a  compilation  of  statistics  as  accurate  in  character 
as  the  purposes  of  the  International  Institute  would 
naturally  require. 

A  portion  of  his  report  is  devoted  to  the  financial 
condition  of  the  Belgian  state  railroad,  of  which  we 
will  speak  later  in  detail. 

In  Sweden  the  principal  state  operations  are  the 
postal,  telegraph  and  telephone  services  and  the  gov- 
ernment railways.  The  receipts  from  the  railways 
represent  1.30  per  cent,  of  the  average  annual  capital. 

The  City  of  Paris  municipalized  the  service  of 
burying  the  dead  in  1905.  In  1906  the  receipts  were 
5,242,000  francs  ($995,980),  while  the  labor  and 
equipment  expenses  were  respectively  2,500,000  francs 
($475,000)  and  2,135,000  francs  ($405,650),  or  a 
total  of  4,635,000  francs  ($880,650). 

In  1910  the  receipts  were  4,660,000  francs  ($885,- 

41 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

400).  The  labor  expenses  had  risen  to  2,760,000 
francs  ($524,400)  while  those  for  equipment  had  been 
reduced  to  1,765,000  francs  ($335,350).  At  the  same 
time  there  was  an  outstanding  loan  of  348,000  francs 
($66,120) — a  total  expense  of  4,873,000  francs 
($925,870). 

In  the  case  of  the  quarry  operated  by  the  City  of 
Paris  the  results  are  still  more  unsatisfactory,  accord- 
ing to  a  report  to  the  Municipal  Council  in  1908.  The 
labor  expenses  are  very  much  higher  than  in  neigh- 
boring quarries. 

4.  An  important  part  of  the  report  is  devoted  to 
Austria,  and  is  based  upon  a  previous  report  drawn  up 
under  the  direction  of  J.  G.  Griiber,  by  Dr.  Rudolph 
Riemer.  secretary  of  the  Central  Bureau  of  Statistics. 

Outside  the  usual  monopolies  the  Austrian  govern- 
ment owns  docks  and  mines  and  operates  lotteries. 

In  most  of  these  enterprises  the  costs  of  construc- 
tion and  of  equipment  are  indicated  separately  in  the 
final  accounting,  but  only  those  expenditures  made 
during  any  one  year  are  to  be  found  there,  regardless 
of  those  of  the  preceding  years.  The  items  for  deter- 
mining how  much  of  the  original  debt  has  been  paid 
ofif  are  lacking.  Interest  and  sinking  fund  charges  on 
loans  contracted  in  view  of  government  operation 
do  not  figure  in  the  final  accounting  in  the  chapter 
especially  devoted  to  the  particular  industry  con- 
cerned, but  in  a  chapter  issued  by  the  ministry  of 
Finance  under  the  heading,  Public  Debt  and  Adminis- 
tration of  the  Public  Debt.  Special  information  in 
regard   to   the   auditing   of   the   public  debt   may  be 

42 


BOOKKEEPING  IN  STATE  AND  MUNICIPAL  ENTERPRISES 

found  in  the  annual  report  of  the  special  committee 
(Commission  de  Contrôle)  managing  the  debt.  But 
in  this  report  the  information  touching  interest  and 
sinking  fund  charges  does  not  inform  us  as  to  the 
actual  application  of  the  loan. 

The  same  conditions  prevail  in  the  case  of  the  pub- 
lic debt  contracted  for  the  benefit  of  the  railroads. 
Our  information  covers  only  interest  and  sinking 
fund  charges  on  the  amortizable  debt.  But  even  that 
portion  of  the  debt  does  not  represent  all  the  loans 
contracted  for  the  benefit  of  the  railroads. 

According  to  the  Statistique  des  Finances  de  la 
H  ante- Autriche  et  de  Salzburg  (8th  annual  report) 
the  expenses  of  all  the  towns  of  Upper  Austria  aris- 
ing from  the  operation  of  their  utilities  amount  to 
4.44  per  cent,  of  all  their  expenses.  The  costs  of  con- 
struction are  quoted  en  bloc  in  a  special  chapter. 

The  result  of  M.  Schelle's  investigation  proves  that 
almost  everywhere  the  data  necessary  in  order  to  de- 
termine exactly  the  profits  or  losses  upon  state  or 
municipal  industrial  operations  are  insufficient. 


"Whatever  be  the  end  in  view  when  states  or  munici- 
palities organize  industrial  enterprises — whether  the  ob- 
ject be  fiscal  or  economic,  for  the  sake  of  the  consumer  or 
even  in  the  exclusive  interest  of  employees — it  is  indis- 
pensable to  know  whether  these  enterprises  are  actually 
resulting  in  profits  or  losses,  and  the  amount  of  each. 

"As  far  as  the  essential  functions  of  the  state  are  con- 
cerned, such  as  providing  for  public  safety,  public  high- 
ways, etc.,  the  establishment  of  special  accounts  would  be 
impossible  and  without  much  value,  inasmuch  as  these 

43 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

services  provide  no  opportunity  for  direct  payment  on 
the  part  of  consumers.  Such  services  derive  no  re- 
ceipts, properly  so-called,  nor  can  they  be  abolished. 
When  it  is  expedient  to  know  whether  the  management 
of  these  activities  is  not  too  extravagant,  it  is  necessary 
to  proceed  by  contrasting  one  year  with  another,  or  by 
comparing  certain  items  of  expense  with  similar  items 
in  other  countries,  or  in  other  localities. 

"Public  industrial  enterprises  are  almost  never  essen- 
tial, since  they  may  be  intrusted  to  private  operation. 
They  resemble  private  enterprises  and  provide  oppor- 
tunity for  special  receipts.  It  should,  therefore,  be  pos- 
sible to  furnish  to  the  taxpayers,  in  whatever  concerns 
them,  means  of  knowing  the  amount  of  income,  just  as 
opportunities  for  such  information  are  afforded  to  the 
stockholders  or  creditors  of  any  private  concern.  To  pre- 
tend that  the  financial  side  of  state  or  municipal  enter- 
prises should  be  neglected  because  such  undertakings  are 
created  for  the  public  interest  is  only  an  effort  to  side- 
track possible  criticism.  Public  management,  like  any 
other,  can  be  good  or  bad.  If  it  is  directed  toward  se- 
curing advantages,  justly  or  unjustly,  to  this  or  that  class 
of  people,  whether  consumers  or  employees,  it  is  at  least 
necessary  that  those  who  are  to  foot  the  bills,  that  is  to 
say,  taxpayers,  should  know,  personally  or  through  their 
representatives,  whether  the  contributions  demanded  are 
not  exorbitant.  Such  a  requirement  should  not  be  ques- 
tioned in  any  country. 

"From  another  point  of  view,  how  can  the  preten- 
tion be  sustained  that,  in  certain  cases,  the  state  or  munic- 
ipality can  serve  the  public  to  better  advantage  than 
private  companies  when  such  states  or  municipalities  do 
not  furnish  the  public  with  adequate  information  con- 
cerning their  administration. 

44 


bookkeeping  in  state  and  municipal  enterprises 

Conclusions 

5.  "In  fact,"  concludes  M.  Schelle,  ''the  efforts 
made  to  organize  special  accounts  for  state  and  mu- 
nicipal industrial  enterprises  have  failed.  Public 
documents  sometimes  furnish  precise  enough  infor- 
mation as  to  receipts  or  expenses  of  operation,  but  it 
is  nearly  always  difficult  to  discover  the  amount  of  the 
costs  of  construction,  and  it  is  impossible  to  get  any 
adequate  idea  of  capital  charges,  interest  and  amor- 
tization." His  observations,  in  regard  to  Denmark, 
Holland,  France,  and  Austria,  prove  that  in  no  respect 
do  the  accounts  ever  bring  out  the  real  gains  or  losses 
of  state  enterprises. 

The  difficulties  encountered  arise  from  the  fact  that 
a  state  or  a  municipality  cannot  have  more  than  one 
budget.  Moreover  all  the  receipts  should  be  entered 
on  one  side,  all  the  expenses  on  the  other.  In  this  re- 
spect at  least  public  organizations  should  be  managed 
like  private  corporations.  If  these  latter  fail  their 
creditors  demand  the  amount  of  their  claims  at  so 
many  cents  on  the  dollar.  A  well-organized  state 
should  have  only  one  purse,  nor  shoidd  any  distinction 
be  made  between  its  various  loans.  All  should  be 
secured  upon  one  single  guaranty — its  credit. 

Without  a  unified  budget  sound  finance  is  out  of 
the  question.  A  special  account  for  a  state  or  munici- 
pal industrial  enterprise  can  have  only  a  fictitious 
value. 

In  other  words,  sane  budget  regulations  and  public 
management  of  trading  enterprises  are  contradictions 
in  terms. 

45 


CHAPTER  II 
THE    BELGIAN     STATE    RAILROADS 

1.  Accounts. — Capital  Charges. — Rates  of  Issue. — Review  of 

Receipts  and  Expenditures. — Final  Profits  Do  Not 
Contribute  toward  Balancing  the  Budget. — The  Budget 
Has  Obtained  No  Advantage  from  State  Operation  of 
Railroads. 

2.  Passengers  and  Shippers. — Increase  of  the  Rate  on  Pit 

Coal. — Resolution  of  November  29,  191 1. — Plan  of  M. 
Hubert. 

I.  Railroads  are  the  most  important  industrial  en- 
terprises undertaken  by  a  state.  What,  then,  are  the 
financial  results  of  their  public  operation? 

The  Belgian  state  railway  was  established  by  the 
organic  law  of  June  i,  1834.  By  reason  of  the  length 
of  time  it  has  been  in  operation  it  has  a  right  of 
precedence. 

Marcel  Peschaud  has  published  in  the  May  and  June 
numbers  of  the  Revue  Politique  et  Parlementaire  a 
remarkable  study  of  the  Belgian  railways,  but  his 
analysis  would  lead  us  too  far  astray.  I  must  con- 
fine myself,  therefore,  to  a  résumé  of  what  M.  Schelle 
has  to  say  on  the  subject  in  his  report  to  the  Inter- 
national Statistical  Institute. 

The  law  of  1834  provided  that  a  complete  account 
of  the  operations  of  the  railways  be  presented  to  the 

46 


THE    BELGIAN    STATE    RAILROADS 

Chambers  annually,  by  which  account  are  understood 
the  receipts  and  expenditures,  together  with  the  use 
of  the  funds  for  the  construction  of  lines  placed  at  the 
disposal  of  the  new  department.  The  accounts  thus 
rendered  soon  proved  to  be  altogether  inadequate. 

In  1845  estimates  of  interest  and  sinking  fund 
charges  were  added  to  the  previous  requirements. 
Controversies  arose  over  these  estimates,  and  it  be- 
came necessary  to  change  the  system  several  times  in 
order  to  settle  the  rate  question.  At  the  close  of  1878 
it  was  decided  that  the  management  of  the  railroads 
should  make  up  a  balance  sheet  in  the  form  of  com- 
mercial balance  sheets.  This  was  done,  but  capital 
charges  were  computed  at  a  uniform  rate  based  on  a 
period  of  retirement  of  ninety  years. 

Moreover,  according  to  M.  Nicolai  (Government 
Railways  of  Belgium,  1885)  the  cost  of  replacements 
and  reconstructions  was  charged  to  the  construction 
accounts  without  deductions  for  renewals  and  repairs. 
On  the  other  hand,  the  annual  payments  for  the  pur- 
chase of  lines  which  should  have  been  charged  to 
construction  were  charged  to  operation. 

"Never,"  says  the  minister  of  Public  Works  (Report 
for  the  year  ipoj),  "have  the  railway  accounts,  that  is 
to  say,  the  accounts  prescribed  by  law,  been  found  other 
than  defective.  On  the  contrary,  the  statements  of  con- 
ditions, the  statistics,  the  estimates  and  reports,  relating 
in  part  to  such  items  as  interest,  sinking  funds,  pensions, 
etc.  (which  are  not  within  the  legal  powers  of  the  rail- 
road department  to  pass  upon),  have  never  ceased  to 
be  the  subject  of  the  most  lively  discussions.  Charges 
have  been  made  in  turn,  or  sometimes  simultaneously,  that 

47 


WHERE   AND    WHY    PUCLIC    OWNERSHIP    HAS    FAILED 

the  profits  were  swelled  and  concealed,  that  there  was  too 
much  red  tape,  even  to  the  point  of  disregarding  the  es- 
sential rules  of  a  business  enterprise,  or  that  there  was 
not  enough  control,  because  the  accounts  were  separate 
from  those  of  the  Treasury.  The  subject  has  furnished 
an  inexhaustible  theme  of  argument." 

Of  late  years  it  has  been  decided  that  the  data  con- 
tained in  the  annual  reports  ought  to  be  kept  with  the 
Treasury  accounts,  and  that  the  balance  sheets  should 
be  made  up  between  the  department  of  Public  Works 
and  that  of  Finance.  The  accounts  for  1905  and  the 
years  following  have  been  established  upon  this  new 
basis. 

As  for  capital  charges  met  by  enlarging  the  public 
debt,  a  rate  of  issue  was  adopted,  which  varied 
from  4.90  per  cent,  to  3. 11  per  cent.  Then  the  gov- 
ernment proceeded  to  publish,  under  the  title  of 
"annexes"  to  the  financial  report:  i".  A  general 
balance  sheet  for  the  year  ending  December  31, 
showing  on  the  credit  side  construction  costs  since 
the  beginning  of  the  undertaking  and  the  gross 
operating  receipts  and  on  the  debit  side  the  cap- 
ital already  retired  and  remaining  to  be  retired, 
the  amount  of  charges  upon  this  capital,  the  dues  and 
rents  paid  by  the  state  railway  system  to  other  rail- 
road enterprises,  operating  expenses  and  the  profit 
and  loss  balance.  2".  A  separate  account  of  operating 
receipts  and  expenditures  for  the  preceding  year. 
3",  A  provisional  account  of  operations  for  the  cur- 
rent year,  and  of  profit  and  loss,  comprising,  on  the 
one  hand,  operating  expenses,  pensions  charged  to  the 

48 


THE    BELGIAN    STATE    RAILROADS 

general  budget,  fixed  charges,  including  yearly  in- 
stallments, and  the  portion  of  receipts  due  to  com- 
panies whose  lines  are  operated  by  the  government  ; 
and,  on  the  other  hand,  the  profits  of  operation,  prop- 
erly so-called,  together  with  various  other  profits. 
4".  A  table  recapitulating  the  financial  results  since 
the  establishment  of  the  system  (1835)  setting  forth 
the  annual  balances  in  profits  or  in  losses.  5".  A  table 
of  interest  and  sinking  fund  charges  from  the  be- 
ginning.    Finally,  tables  of  operating  statistics. 

As  a  result  of  the  new  system  adopted  the  profit 
shown  in  a  large  number  of  the  previous  reports  was 
transformed  into  a  deficit. 

The  report  for  the  year  1909  gives  the  following 
results,  computed  in  francs  : 


Installation  Costs 

Francs 

Lines  constructed  by  the  state 675,655,000 

Lines  constructed  by  contract 176,317,000 

Lines  purchased  and  completed 978,017,000 

Completion  of  lines  operated  under  rentals 10,293,000 

Station   structures    72,928,000 

Surveys    18,547,000 

Equipment    719,188,000 

Total    2,650,945,000 

Of  which  amount  there  has  been  retired  by  sinking 

fund  charges    350,105,000 

Difference    2,300,840,000 

The  difference  was  made  up  : 

By   the   funded  debt 1,959,917,000 

By  annual  appropriations  for  purchase 340,024,000 

Total    2,299,941,000 

49 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Interest  and  sinking  fund  charges  were  computed, 
for  1908,  at  94,015,000  francs  and,  for  1909,  at  97,- 
020,000  francs. 

1908  1909 

Total   receipts    269,362,000        281,532,000 

Total  expenses    182,391,000        190,540,000 

86,971,000  90,992,000 

Deduct    interest    and    sinking   fund 
charges   94,015,000  97,020,000 

Deficit    7,044,000  6,028,000 

"To  sum  up,"  concludes  M.  Schelle,  "if,  from  the 
very  beginning,  we  compare  the  positive  with  the  nega- 
tive balance  of  each  year,  and  add  the  sum,  we  find 
in  1908  a  final  net  profit  of  30,966,000  francs  and  in 
1909  one  of  24,938,000  francs." 

The  maximum  net  gains  were  44,975,000  francs 
in  1910,  and  the  maximum  net  losses  73,998,000 
francs  in  1886.  During  many  years  the  summaries 
which  now  show  deficits  would  have  shown  profits  in 
the  years  previous  to  1885. 

The  fancy  that  the  state  budget  can  ever  be  repaid 
for  its  outlay  through  the  profits  of  the  railroads  no 
longer  exists   in  Belgium. 

M.  Helleputte,  minister  of  Railways,  says  in  his 
preliminary  note  to  the  operating  report  of  1908: 

"The  operation  of  Belgian  railways  has  undergone 
various  fortunes.  Since  1835 — 74  years — the  balance 
has  shown  a  deficit  36  times  and  38  times  a  profit.  Since 
the  beginning  of  these  operations  the  total  profits  exceed 
the  total  deficits  only  by  the  small  sum  of  31,274,000 

50 


THE    BELGIAN    STATE    RAILROADS 

francs,  or  an  annual  average  of  422,600  francs  for  an 
average  active  capital  of  778,733,000  francs,  or  .05  per 
cent.,  all  of  which  amounts  to  saying  that,  up  to  the 
present  day,  the  railroad  has  operated  at  cost." 

The  report  goes  on  : 

"If  we  take  into  consideration  the  accumulated  inter- 
est upon  the  deficits,  the  amount  of  which  had  to  be  bor- 
rowed from  the  Treasury,  and,  if  we  deduct  the  debit 
balances,  the  apparent  surplus  gives  place  to  a  deficit  of 
86,836,000  francs,  or  an  average  annual  loss  of  1,173,000 
francs — o.ii  per  cent,  of  the  average  working  capital."^ 

During  the  great  convention  of  Belgian  manufac- 
turers and  merchants,  on  November  29,  19 11,  M. 
Cannon-Legrand  said  :  - 

"The  Belgian  government  acknowledged  a  loss  of  6,- 
965,000  francs  in  1907,  more  than  7  millions  in  1908, 
and  6  millions  in  1909.  In  1910  we  were  promised  a 
profit  of  4,500,000  francs,  which  has  now  dropped  to 
2,790,000  francs. 

"On  the  other  hand,  the  capital  investment  has 
reached  2,731,000,000  francs,  showing  an  average  in- 
crease for  the  last  three  years  of  50,000  francs  per 
kilometer  for  the  whole  system  (4,329  kilometers — 2,706 
miles). 

"Thus,  during  the  year  1910,  the  capital  invested  by 
the  government  in  its  railways  realized  exactly  o.io  per 
cent.     This  was  an  absolutely  exceptional  year,  both  in 

^  Revue  Générale  des  Chemins  de  Fer,  November,  191 1,  page 
352. 

^  Bulletin  du  Comité  Central  du  Travail  Industriel,  December 
15,  1911- 

SI 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

volume  of  traffic  and  in  freight  and  passenger  receipts. 
It  brought  into  the  coffers  of  the  railroads  27,725,000 
francs  more  than  in  1909,  in  which  year  the  system  had 
earned  approximately  12,230,000  francs  more  than  in 
1908." 

We  are  thus  justified  in  concluding  that  the  budget 
of  the  Belgian  government  has  derived  no  advantage 
from  the  operation  of  railways. 

2.  But  does  not  such  operation  redound  greatly 
to  the  advantage  oi  travelers  and  shippers? 

The  partisans  of  ownership  and  operation  of  rail- 
roads by  the  state  are  constantly  harping  upon  the 
cheap  rates  of  state  railways,  as  opposed  to  the  high 
rates  established  by  private  companies. 

By  an  order  issued  on  the  25th  of  October,  191 1, 
the  minister  of  the  Belgian  Railway  department  raised 
the  rates  on  pit  coal  on  the  strength  of  a  law  of  19 10, 
which,  in  its  turn,  found  support  in  another  law, 
passed  April  12,  1835,  which  says: 

"Temporarily,  and  while  waiting  for  experience  to 
guide  to  a  final  adjustment  of  the  rates  to  be  levied  by 
the  aforesaid  road,  in  conformity  with  Article  5  of  the 
law  of  May  i,  1834,  these  rates  shall  be  regulated  by  a 
royal  decree." 

Now,  Article  5,  of  the  law  of  May  i,  1834,  under 
which  the  Belgian  system  was  established,  reads  : 
"The  profits  of  the  road  accrue  from  the  rates  which 
are  to  be  regulated  annually  by  law."  Thus,  the  law 
of  1835  is  only  a  temporary  expedient,  which  must  be 

52 


THE    BELGIAN    STATE    RAILROADS 

renewed  at  certain  dates.  Although  this  experiment 
has  lasted  since  1835,  the  ministry  considered  that  it 
needed  a  new  lease  of  life. 

Freight  rates  for  pit  coal  were  increased  from  i  to 
2  centimes  per  ton  kilometer  by  tariff  No.  61,  which 
replaced  tariff  No.  31.  The  convention  of  Belgian 
manufacturers,  on  November  29,  191 1,  entered  a  pro- 
test against  this  increase  in  a  series  of  resolutions  from 
which  we  quote  the  following: 

"The  state  is  managing  its  railway  lines  from  the  sole 
point  of  view  of  making  them  serve  as  purveyors  to  its 
insufificient  resources.  It  is  operating  in  defiance  of  rules 
essential  to  the  prosperity  of  all  commercial  enterprise, 
without  any  rational  accounts  of  such  a  nature  as  will 
tend  to  keep  it  fully  informed  as  to  net  cost." 

In  view  of  this  resolution,  toward  the  close  of  191 1, 
the  conclusions  in  the  1907  report  of  M.  Hubert,  com- 
mittee reporter  of  the  railway  budget  for  the  third 
time,  are  evidently  as  true  to-day  as  they  were  then  : 

"The  management  of  the  Belgian  state  railways  has 
committed  itself  to  a  policy  of  political  expediency  which 
is  sacrificing  the  general  interest  to  interests  purely  local 
and  electoral." 

"The  personnel  is  too  large,  ill  paid,  unwisely  selected, 
and  works  overtime." 

"Passenger  service  is  both  lacking  in  comfort  and  very 
slow." 

"From  the  standpoint  of  rates,  passenger  service  is 
favored  at  the  expense  of  the  shippers.  The  department 
repudiates  all  responsibility  for  the  acts  of  its  employees 
or  the  failure  of  its  equipment." 

53 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"Far  from  trying  to  meet  its  patrons  half  way,  the 
Railroad  department  maintains  rates  which  are  purely 
arbitrary,  and  shows  itself  violently  opposed  to  any  pos- 
sible competition." 

Finally,  as  spokesman  of  the  Central  Railway 
Division,  M.  Hubert  concludes  : 

"It  will  become  necessary  to  do  what  has  been  done  in 
Holland, — viz.,  lease  the  railways,  with  conditions  at- 
tached to  the  lease  safeguarding  the  rights  of  employees 
and  the  interests  of  passengers.  And  it  is  certain  that 
private  enterprise  would  derive  far  better  results  from 
our  immense  railway  resources  than  the  government  has 
been  able  to  do.  It  is  advisable  that  this  outcome  be  seri- 
ously considered,  since  future  possibilities  indicate  that 
such  a  course  is  unavoidable,  if  expenses  continue  to 
increase  at  the  same  rate." 

Yet  French  engineers  are  unanimous  in  praise  of 
the  skill  with  which  the  Belgian  lines  are  managed  by 
the  minister  of  Railroads  and  his  distinguished  co- 
workers. 


54 


CHAPTER  III 

PRUSSIAN    RAILROADS 

1.  Governmental   Distrust  of  the  Railroads. — Obstacle   En- 

countered by  Bismarck  in  His  Attempt  to  Organize  an 
Imperial  System. — Government  Railroads. — The  Real- 
ity of  Prussian  Railroad  Profits. 

2.  Railways  and  Waterways. — Diverting  Traffic. — Prussian 

Railways. — Discrimination  Against  the  Rhine  and  Rot- 
terdam.— Contradictions. 

3.  Prussian  Railway  Rates. — Political  Methods  of  Concilia- 

tion.— Berlin's  Milk  Supply. — The  Ticket  Tax. — Rate 
Increase. — Baggage  Rates. — German  and  British  Rail- 
ways.— Express  Train  Delays. — Rate  Discrimination 
the  Rule. — Comparison  of  Rates. — Lack  of  Responsi- 
bility.— Insurance. — Arguments  in  Favor  of  Prussian 
Railways. — Complaints  and  the  Ministerial  Reply. — 
Claims  for  Damages. — Operating  Ratio. — Employees  of 
Prussian  Railroads. 

I.  In  Germany,  as  everywhere  else,  the  railroads 
inspired  mistrust  in  the  various  state  governments. 
There,  also  as  everywhere  else,  the  credit  for  their 
initial  construction  belongs  to  individuals.  Up  to  1843 
the  railroads  received  no  subsidy  whatever  from  any 
of  the  federal  states.  General  state  aid  was  withheld 
until  about  1845,  when  a  policy  of  government  rail- 
ways was  introduced.  In  1850  a  number  of  states 
took  over  certain  lines  which  were  struggling  under 
pecuniary  embarrassment. 

55 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

In  1874,  amid  an  utter  confusion  of  state  and  pri- 
vate roads,  Bismarck  conceived  the  idea  of  organizing 
an  imperial  system,  of  which  the  hues  of  Alsace-Lor- 
raine, which  had  been  already  declared  imperial,  were 
to  form  the  point  of  departure.  In  the  desire,  how- 
ever, to  prevent  such  a  system  of  national  railway 
lines,  the  southern  states  hastened  to  buy  up  the  inde- 
pendent lines  within  their  borders. 

Bismarck  then  proceeded  to  concentrate  all  his 
efforts  upon  nationalizing  the  Prussian  railways, 
trampling  the  private  companies,  which  at  that  time 
possessed  44.5  per  cent,  of  the  system,  unscrupulously 
under  foot.  As  a  result,  there  are  to-day  in  Germany 
independent  railways,  state  lines  and  lines  belonging 
jointly  to  two  or  more  states.  The  only  imperial  lines 
are  those  of  Alsace-Lorraine.  Private  companies  now 
possess  only  lines  of  secondary  importance. 

Bismarck  had  all  sorts  of  reasons  for  acquiring 
the  railways  of  Prussia.  For  example,  he  hoped  to 
render  himself  more  independent  of  the  Prussian 
Diet  it  he  had  the  railroad  receipts  at  his  disposal. 
The  government  had  already  begun  a  military  line, 
but  was  encountering  political  difficulties  in  complet- 
ing it.  Bismarck's  proposed  state  system  was  one  way 
of  putting  an  end  to  opposition  of  precisely  this  char- 
acter. Finally,  railway  rates  are  an  excellent  protec- 
tionist instrument,  actually  serving  the  German  gov- 
ernment in  that  capacity.  Rates  are  raised  on  impor- 
tations and  lowered  on  exportations. 

It  has  been  asserted  frequently  that  the  orofits  on 
Prussian  railroads  have  been  as  follows  : 

56 


PRUSSIAN    RAILROADS 

1882  S.22% 

1885  4.88% 

1890  9.26% 

1891  6.75% 

1900  6.87% 

1905    713% 

1908   4.78% 

1909   5-94% 

The  lowest  percentage  was  4.68  per  cent,  in  1883, 
but  the  operating  expenses  included  no  capital  charges 
on  the  railway  debt.  If  interest  at  3  per  cent,  were 
included,  and,  if  a  small  sum  for  a  sinking  fund  were 
added,  the  profits  would  fall,  for  the  period  1881-1895, 
to  2  per  cent.,  and  for  1897-1906  to  3.75  per  cent. 
German  government  railways  are  exempt  from  all 
general  taxation  and  are  taxed  locally  only  to  the 
amount  of  1,100  francs  per  mile,  whereas,  in  Great 
Britain,  the  local  taxation  is  more  than  5,250  francs 
per  mile. 

The  cost  of  construction  of  German  railways  has 
not  been  very  heavy.  The  north  of  Germany  is  en- 
tirely flat.  Not  a  single  tunnel  is  to  be  found  there. 
The  cost  per  mile  in  1907  was  about  277,121  marks, 
while  the  average  cost  in  Europe  was  336,000  marks. 

2.  It  is  customary  to  speak  very  glibly  in  France 
of  the  harmony  existing  in  Germany  between  railways 
and  waterways. 

An  article  which  appeared  in  the  Reviic  des  Deux 
Mondes,  in  1902,  entitled  Les  Voies  Navigables  de 
l'Allemagne,  by  Alfred  Mange,  and  two  articles  en- 
titled Le  Rhin  Allemand,  published  by  Paul  Léon,  in 
the  Revue  de  Paris,  on  the  first  and  fifteenth  of  Feb- 

5^ 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

riiary,  1903,  show  that  the  facts  completely  contradict 
these  assertions. 

In  the  first  place,  in  Germany,  even  more  than  in 
France,  both  the  railway  lines  and  the  waterways 
follow  a  north  and  south  course.  It  is  not  alone  from 
this  point  of  view,  however,  that  traffic  disputes  may 
arise.  Nearly  every  one  of  these  rivers  crosses  several 
states  whose  interests  are  frequently  diametrically 
opposed.  The  lower  Rhine  competes  with  the  Prus- 
sian railways;  l)ut  the  railways  of  Baden,  of  the 
Palatinate,  and  of  Alsace,  says  M.  Mange,  favor  navi- 
gation on  the  upper  Rhine  by  greatly  reduced  rates  of 
transshipment  and  transit,  in  order  that  shipping  may 
be  diverted  from  th^i  Prussian  lines.  The  same  condi- 
tion of  affairs  exists  in  the  case  of  the  Elbe.  In  its 
lower  course  it  competes  with  the  Prussian  lines,  and 
in  its  upper  course  it  is  favored  by  the  railways  of 
Bohemia. 

When  railways  thus  favor  ports  of  transshipment, 
they  are  not  moved  by  an  altruistic  sympathy  for  the 
ship  companies,  but  entirely  by  their  conception  of 
their  own  interests.  The  government  railways  of 
Prussia  have  established  rates  to  fight  such  private 
companies  as  still  manige  to  exist.  When  the  Rhine 
was  navigable  only  as  far  as  Mannheim,  the  Baden 
government  established  there  a  port  of  transshipment, 
opened  in  1875,  ^^^  the  purpose  of  diverting,  in  its 
own  interest,  Prussian  and  Alsatian  traffic  toward 
Switzerland.  The  Bavarian  government  made  use  of 
the  Main  to  bring  its  railroads  into  connection  with 
the  ports  of  the  North  Sea,  and  to  avoid  making  use 
of  Prussian  railways.     The  ports  of  Riesa  and  Dres- 

58 


PRUSSIAN    RAILROADS 

den  were  established  at  the  expense  of  the  railroads 
of  Saxony,  that  of  Aussig  at  the  expense  of  the  rail- 
road from  Aussig  to  Teplitz;  that  of  Tetschen  and 
Lauda  at  the  expense  of  the  Austrian  North  West 
railroad;  in  each  and  every  case  to  divert  traffic  from 
Prussian  railroads. 

M.  Léon  has  outlined  the  complicated  struggle  of 
the  Prussian  railroads  against  the  navigation  of  the 
Rhine.  The  differential  tariffs  established  in  1863  are 
still  employed  by  the  state,  and  not  tacitly,  but  openly. 
A  circular,  on  the  30th  of  October,  1884,  established 
the  theory.  The  end  in  view,  it  says,  is  to  "facilitate 
the  importation  of  first-class  material  and  the  expor- 
tation of  the  products  of  national  industry,  as  well  as 
to  protect  the  commerce  of  German  ports  against  the 
ports  of  Holland."  In  order  to  divert  from  Rotter- 
dam products  of  the  iron  and  steel  industry  the  gov- 
ernment does  not  hesitate  even  to  be  incoherent. 

"The  Prussian  railway,"  says  M.  Léon,  has  not 
contented  itself  with  opening  the  Westphalian  mar- 
kets to  its  maritime  ports  by  rate  reductions,  but  it 
has  closed  them  to  Rhenish  ports  by  raising  the  trans- 
shipment rates  upon  those  lines  which  lead  to  them. 

In  order  to  divert  from  Rotterdam  to  Bremen  the 
cottons  destined  for  Derendorf,  6  kilometers  from 
Dusseldorf,  the  railway  charges  10  marks  50,  or  17 
pfennigs  per  ton  kilometer.  To  divert  the  iron  of 
Westphalia  from  Rotterdam  a  ten-ton  load  pays  from 
Hagen  to  Hamburg,  a  distance  of  388  kilometers,  72 
marks,  or  1.8  pfennigs  per  ton  kilometer.  From 
Hagen  to  Dusseldorf,  or  59  kilometers,  the  railway 

59 


tVHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

charge  is  31  marks  50,  or  5,3  pfennigs,  per  ton  kilo- 
meter. 

Is  patriotism  the  sole  motive  which  drives  the  Prus- 
sian railroads  to  struggle  in  this  way  against  the  navi- 
gation of  the  Rhine?  Then  why  do  they  weaken  the 
effect  of  such  an  argument  by  favoring  importation 
into  Holland  if  use  is  made  of  their  cars?  From 
Rotterdam  to  Bochum,  23  kilometers,  a  car  of  10  tons 
pays  35  marks,  or  1.5  pfennigs,  per  ton  kilometer. 
By  way  of  the  Rhine  only  13  marks  is  paid  as  far  as 
Ruhrort,  or  .8  pfenning  per  ton  kilometer,  but  for 
the  35  kilometers  from  Ruhrort  to  Bochum  the  rail- 
road charges  16  marks  50,  or  4.7  pfennigs,  per  ton 
kilometer. 

The  Prussian  railways  favor  navigation  on  the 
Holland  canals  for  the  transportation  of  the  coal  that 
they  deliver  to  the  frontier.  At  the  same  time,  in 
order  to  put  obstacles  in  the  way  of  mixed  transporta- 
tion, partly  by  rail  and  partly  by  water,  as  well  as  for 
the  purpose  of  deflecting  traffic  from  Baden  railways, 
they  grant  to  Mainz  and  to  Frankfort  transshipping 
rates  that  they  refuse  to  Ruhrort  or  to  Dusseldorf. 
Then  there  are  mineral  rates  for  Bavaria,  iron  and 
steel  rates  for  Switzerland,  petroleum  rates  for  Wiirt- 
temberg,  sulphur  rates  for  NiAremburg,  etc. 

The  exceptional  tariffs  of  the  Prussian  system  af- 
fect 63  per  cent,  of  the  total  kilometric  tonnage  and 
46  per  cent,  of  the  total  receipts  of  the  Prussian  state. 
Their  average  rate  is  2.6  pfennigs,  instead  of  5. 11 
pfennigs,  the  regular  tariff  figure. 

The  chambers  of  commerce  of  the  Rhenish  cities 
protested  against  such  discrimination,  and  the  cham- 

60 


PRUSSIAN    RAILROADS 

ber  of  commerce  of  Duisburg  scored  the  policy  of  the 
I'russian  railways  in  the  following  terms  : 

"We  admit  that  every  group  pursues  with  energy  the 
defense  of  its  own  interests  ;  we  do  not  admit  that  such 
a  policy  may  hide  behind  the  fig-leaf  of  national  in- 
terest." 

Such,  when  examined  in  detail,  are  the  facts  which 
utterly  contradict  the  legend  of  harmony  between 
the  Prussian  state  railways  and  the  waterways. 

3.  In  the  Journal  of  Political  Economy,  of  Chi- 
cago, Hugo  Meyer  has  cited  a  fact  which  shows  how 
accommodating  it  is  possible  for  a  government  rail- 
road to  be.  The  rate  upon  milk  had  been  so  estab- 
lished as  to  prevent  any  shipment  of  milk  to  Berlin 
from  a  distance  greater  than  75  miles.  As  a  result  of 
this  tariff  the  milk  supply  for  the  capital  was  con- 
centrated within  an  average  radius  of  50  miles.  This 
rate  was  established  in  the  interest  of  the  Berliner 
Milch  Central,  founded  by  members  of  the  Associa- 
tion of  Farmers  (Bund  der  Landwirte),  one  of  the 
most  powerful  political  leagues  of  Germany.  In  order 
to  conciliate  this  organization,  the  government  re- 
mained deaf  to  the  complaints  of  the  retail  merchants. 
A  plan  was  formed  to  bring  milk  to  Berlin  from  Den- 
mark by  tank  cars.  The  government  declared,  how- 
ever, that  milk  was  not  among  those  articles  for  which 
transportation  in  tank  cars  had  been  provided  ;  and  it 
imposed  such  conditions  and  such  formalities  that 
the  originators  of  the  scheme  were  compelled  to  give 
up  the  attempt. 

61 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  Prussian  government  acts  upon  the  principle 
that  it  is  not  necessary  to  obviate  "the  natural  disad- 
vantages of  the  distant  producers."  According  to  this 
rule,  in  the  interest  of  the  market  gardeners  of  Paris 
and  its  suburbs,  Parisians  should  be  forbidden  to  con- 
sume, or  at  least  should  be  made  to  pay  exorbitantly 
for,  the  fruits  and  vegetables  coming  from  the  south 
or  from  Algeria. 

The  Prussian  railways  have  a  fourth  class,  lacking 
in  almost  every  comfort  ;  although  the  average  length 
of  travel  in  the  third  and  fourth  class  is  from  20  to  24 
kilometers  (13  to  15  miles).  In  1907,  during  a  tem- 
porary embarrassment  of  the  budget,  the  government 
laid  a  duty  upon  railway  tickets  and  abolished  return 
tickets  on  all  German  roads. 

In  the  discussion  over  the  budget  of  1911-1912  the 
minister  of  Finance  described  the  effect  of  these  inno- 
vations on  the  Prussian  railroads.  They  had  pro- 
duced a  reduction  in  the  amount  of  first-class  travel, 
the  total  receipts  having  fallen  from  23.250,000 
francs,  in  1905,  to  20,125.000  francs,  in  1909,  while, 
in  the  way  of  normal  development  of  traffic,  an  in- 
crease equal  to  this  reduction  of  3,125,000  francs 
might  have  been  looked  for.  There  was  also  a  reduc- 
tion in  the  amount  of  second  and  third  class  travel,  and 
a  drop  from  the  third  class  into  the  fourth  class,  which 
is  exempt  from  taxation.  Third-class  passengers  were 
paying  a  rate  50  per  cent,  higher  than  the  fourth  class, 
while  first-class  passengers  were  paying  300  times 
more. 

In  Belgium  and  Germany,  since  1907,  the  railways 
have  not  carried  any  free  baggage.    During  a  journey 

62 


PRUSSIAN    RAILROADS 

in  Germany  my  traveling  companion  and  myself  had 
each  to  pay  in  round  numbers  i8o  francs  for  our 
tickets;  but  to  this  sum  must  be  added  nearly  60 
francs  for  the  40  kilos  (88  lbs.)  of  baggage  of 
my  traveling  companion,  and  more  than  72  francs 
for  my  50  kilos  (no  lbs.).  This  additional  charge 
raised  the  cost  of  transportation  in  my  friend's 
case  33  per  cent.,  and  in  mine  40  per  cent.  When  the 
price  of  tickets  upon  German  lines  is  compared  with 
those  upon  French  lines  it  is  necessary  to  take  into 
account  the  30  kilograrris  (66  lbs.)  of  exempt  baggage 
allowed  the  traveler  on  the  latter. 

The  charge  on  all  checked  baggage  has  another  in- 
convenient aspect.  It  drives  the  traveler  to  carry  by 
hand  as  much  baggage  as  possible.  Such  a  practice, 
of  course,  crowds  the  carriages  and  incommodes  the 
passengers.  This  condition  has  made  necessary  a 
new  rule,  applied  with  rigor  in  Switzerland,  forbid- 
ding a  passenger  to  bring  into  railway  carriages  bag- 
gage exceeding  specified  weights  and  dimensions.  Ed- 
win Pratt  ^  quotes  a  letter,  which  appeared  in  the 
Daily  Telegraph,  of  February  22,  1908,  signed  by  an 
Englishman,  Mr.  W.  A.  Briggs,  who  had  lived  in 
Germany  : 

"The  service  is  only  half  as  frequent  as  ours  and  the 
fares  only  a  trifle  lower.  They  have  been  raised  twice 
during  the  last  few  years.  If  anyone  thinks  that  a  gov- 
ernment runs  railways  for  the  benefit  of  the  public  he 
is  much  mistaken.  Goods  (freight)  trains  are  both  in- 
frequent and  notoriously  slow.     Urgent  goods  are  not 

^Railways  and  Nationalisation. 

63 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

recognized  unless  one  pays  double  freight.    Cheap  excur- 
sions are  unknown. 

"Finally,  the  red  tape  is  atrocious.  Any  unfortunate 
wight  who  rides  past  his  station  is  mulcted  in  the  differ- 
ence and  fined  6  shillings  on  the  spot.  No  excuses  are 
available.  If  you  overload  a  goods  wagon  you  are  fined 
pounds  for  a  few  hundredweight  put  in  on  a  dark  winter 
evening  to  empty  a  rulley.  Demurrage  is  relentlessly  en- 
forced and  you  are  made  to  feel  that  you  are  dealing 
with  permanent  government  officials  who  do  not  give  a 
straw  for  your  convenience.  I  once  had  a  parcel  of  i 
cwt.  sent  from  Strassfurt  to  Hamburg  and  when  it  ar- 
rived the  note  was  stamped  and  countersigned  by  no 
fewer  than  22  different  persons." 

On  February  23,  19 12,  the  Prussian  railway  admin- 
istration decided  to  refuse  all  parcels  during  several 
days.  The  administration  has  relieved  itself  of  all  de- 
tails of  commerce.  Goods  must  be  delivered  in  bulk 
and  removed  as  such.  There  is  no  interval  of  grace 
allowed  either  at  departure  or  at  arrival.^ 

By  express  the  transportation  of  merchandise  re- 
quires one  day  for  shipping  formalities,  and  one  day 
to  transport  it  300  kilometers  (187^  miles),  or  any 
part  thereof,  however  small  the  fraction.  That  is  to 
say,  it  would  take  three  days  to  transport  a  package 
from  Paris  to  Laval,  a  distance  of  301  kilometers  (188 
miles). 

^Report  on  Railways  in  Germany,  by  C.  H.  Pearson  and 
Nicholas  Reyntiens,  for  the  Board  of  Trade  Conference,  June 
7,  1909  (Cd.  4677)- 

See  for  the  series  of  discussions  concerning  the  Prussian  rail- 
ways the  collection  of  Marche  Financier,  by  Arthur  Raffalovich, 
and  the  Revue  Générale  des  Chemins  de  Fer,  among  others,  the 
number  for  November,  191 1. 

64 


PRUSSIAN    RAILROADS 

Special  tariffs  are  the  rule  in  Germany.  They 
form  a  collection  of  915  volumes,  which  cost  from 
5  pfennigs  to  6  marks  each.  Seven  hundred  and  eight 
are  devoted  to  merchandise,  120  to  live  stock,  367  to 
coal.  This  great  variety  of  rates  drives  the  shipper  to 
commission  houses  and  insurance  agents  for  informa- 
tion and  protection. 

Ordinary  merchandise  is  not  considered  as  wrapped 
unless  it  is  contained  in  strong  wooden  boxes,  or  very 
solid  hampers.  Unless  he  complies  with  these  condi- 
tions the  German  shipper  is  forced  to  sign  a  decla- 
ration that  his  packages  are  either  not  wrapped,  or 
are  insufficiently  wrapped,  in  order  to  relieve  the  rail- 
roads from  all  responsibility. 

Although  by  slow  freight  the  ton  kilometer  of  mer- 
chandise pays  to  the  Prussian  state  railways  an  aver- 
age rate  of  4.59  centimes,  while  in  France  it  is  4.57 
centimes,  do  not  be  deceived  by  the  .02  centime  dif- 
ference, which  is  due  in  part  to  the  bulk  and  long 
hauls  of  heavy  and  cheap  commodities;  and  also  to  a 
custom  of  grouping  which  brings  together  merchan- 
dise of  various  sorts  and  ships  it  in  full  cars,  thus 
saving  the  railroad  department  expenses  of  handling. 
The  department  disclaims  any  responsibility  whatever, 
the  shipper  having  to  insure  himself  with  some  com- 
pany. Moreover,  in  order  to  discourage  future  claims, 
the  department  imposes  a  tax  of  i  mark  on  each  com- 
plaint. 

When  British  and  German  railway  rates  are  com- 
pared it  is  usual  to  forget  the  short  distances  covered 
by  the  British  rate,  an  average  of  35  to  40  miles. 

Edwin    Pratt   is   my   authority    for   the    following 

65 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

typical  example  of  the  tactics  employed  by  the  parti- 
sans of  railway  nationalization  in  Great  Britain. 

Mr.  William  Field,  a  member  of  the  Railway  Na- 
tionalization Society,  founded  in  1907  in  the  United 
Kingdom,  published,  during  the  same  year,  a  pam- 
phlet entitled,  The  Nationalization  of  Irish  Railways; 
Defects  of  the  Present  System.  In  it  he  has  repro- 
duced a  little  table  previously  published  in  a  tract  of 
the  Fabian  Society  in  1899,  ^^^  borrowed  originally 
from  a  work  by  Sir  Bernard  Samuelson,  published  in 
1886.  Yet  the  fallacies  on  which  Sir  Bernard  Sam- 
uelson's  report  was  mainly  based  had  already  been 
thoroughly  exposed  in  the  same  year  in  which  it  was 
issued  by  the  late  Mr.  J.  Grierson,  general  manager 
of  the  Great  Western  Railway,  in  the  appendix  of  his 
book,  Railway  Rates,  English  and  Foreign. 

Grierson  says: 

"Sir  B.  Samuelson's  report  contains  many  errors  of 
detail.  Comparisons  throughout  have  been  made  without 
due  regard  to  the  conditions  attaching  to  the  rates,  or  to 
the  different  circumstances  under  which  the  traffic  is 
carried  ....  In  almost  every  instance  Sir  B.  Samuel- 
son  has  taken  the  lowest  rates  in  Germany,  Belgium,  and 
Holland,  which  are  applicable  only  to  full  truck  loads  of 
5  and  10  tons,  and,  in  some  cases,  viz.,  Belgium,  to  a 
minimum  weight  of  8  cwt.  These  he  has  used  for  the 
purposes  of  comparison  with  English  rates  for  any  quan- 
tities over  500  lbs.  ...  In  some  instances  Sir  B.  Sam- 
uelson has  not  included  in  the  foreign  rates  the  charge 
for  loading  and  unloading.  .  .  .  Such  are  some  examples 
of  the  errors  vitiating  the  comparison." 

66 


PRUSSIAN    RAILROADS 

Now,  even  though  accurate,  22-year-old  rates 
would  have  no  value.  When  they  are  applied  to  trans- 
portation operated  under  conditions  altogether  differ- 
ent they  are  used  either  in  ignorance  or  bad  faith. 

Lord  Avebury,  in  his  book,  On  Municipal  and  Na- 
tional Trading,  says  of  the  German  railroads: 

"It  is  a  mania  to  harp  on  the  cheapness  of  German 
rates.  Dr.  Benmer,  editor  of  Stahl  und  Risen,  has  cal- 
culated that  the  transportation  charges  in  England  are 
10  per  cent,  of  the  total  cost  of  producing  iron,  as  against 
23  per  cent,  in  Germany." 

M.  Kaufman,  in  his  remarkable  work  upon  the 
Politique  Français  en  Matière  de  Chemins  de  Fer,  op- 
posed to  the  refusal  of  the  Prussian  government  to 
lower  the  rates  of  transportation,  "because  of  the 
financial  situation  of  Prussia,"  the  reduction  upon 
express  rates  accomplished  in  France  in  1892.^ 

In  1909  the  German  Centralverhand,  numbering 
representatives  of  the  largest  industries  of  Germany, 
expressed  its  discontent  with  the  fact  that,  while  pri- 
vate companies  were  reducing  rates,  the  Prussian  gov- 
ernment lines  were  raising  them.  In  the  discussion 
over  the  budget  of  1911-1912  Deputy  Mano  said: 

"For  forty  years  I  have  followed  the  fluctuations  in 
the  rates  on  merchandise.  During  prosperous  years, 
when  industry  and  the  railroads  are  thriving,  the  depart- 
ment says:  'Your  business  is  all  right,  therefore  you 
have  no  need  of  rate  reductions.'    In  times  of  depression 

'  See  Yves  Guyot,  Trois  Ans  au  Ministère  des  Travaux  Publics. 

67 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

it  answers  :    'Business  is  as  bad  for  the  railroads  as  for 
you  ;  tiierefore  we  cannot  reduce  the  rates.'  " 

To  the  above  criticism  the  minister  of  Railroads 
contented  himself  with  the  reply  that,  as  the  increase 
in  the  capacity  of  the  cars  introduced  within  late 
years  had  sensibly  diminished  the  net  cost  of  trans- 
portation, the  time  had  not  yet  come  to  consider  a 
general  reduction  of  freight  rates.  In  any  case,  "Rate 
reductions  ought  not  to  be  based  upon  financial  results 
favorable  to  operation.  Rate  reductions  can  be  con- 
sidered only  when  the  annual  revenues  shall  have 
reached  such  a  sound  basis  as  to  ofïer  a  sufficient 
guaranty  against  unfavorable  years." 

Let  us  see  what  this  sound  basis  of  annual  revenues 
is:  The  profits  of  the  railways  were  formerly  used 
to  pay  the  interest  on  the  government  debt,  of  which 
88.4  per  cent,  in  1899,  82.38  per  cent,  in  1905,  74.72 
per  cent,  in  1909  was  caused  by  the  railroads. 

Up  to  1 9 10  the  Prussian  general  budget  received 
nearly  the  entire  net  earnings  of  the  railways,  with 
insecurity,  instability,  and  trouble  in  the  whole  budget 
situation  as  a  result.  In  1907  the  net  earnings  fell 
below  the  preliminary  budget  estimate  by  96,000,000 
francs  and  in  1908,  190,000,000  francs.  For  1909 
on  the  contrary,  following  a  pressure  of  freight  traf- 
fic, the  receipts  improved  by  130,000.000  francs.  This 
improvement  was  due,  in  part,  to  an  actual  saving  of 
25,000,000  francs. 

According  to  a  report  for  the  preceding  year  the 
increase  of  traffic  during  the  period  between  the  first 
of  April  and  the  end  of  November,   1910,  was  5.97 

68 


PRUSSIAN    RAILROADS 

per  cent,  for  passenger  traffic,  and  7.34  per  cent,  for 
freight,  or  an  average  for  all  traffic  of  6.66  per  cent. 

Railway  receipts  are  dependent  upon  the  economic 
activity  of  the  country.  As  a  compensation  for  this 
contingent  and  disturbing  element  in  the  Prussian 
budget  it  was  decided,  at  the  beginning  of  1910,  that 
out  of  the  profits  available  after  paying  for  interest 
and  the  amortization  of  the  railroad  debt  there  should 
be  devoted  :  first,  to  the  special  budget  of  the  rail- 
roads, 1. 1 5  per  cent,  at  least  upon  the  reported  capital 
of  the  system,  or  actually  150,000,000  francs  ($28,- 
500,000)  ;  second,  to  the  general  state  budget,  in  order 
to  make  up  its  deficits,  2.10  per  cent,  of  this  same 
capital,  or  275,000,000  francs   ($52,250,000). 

The  surplus  was  to  be  devoted  to  a  regulation  (or 
compensation)  fund  destined  to  complete  the  pay- 
ments to  the  general  budget  in  the  bad  years,  when 
the  net  income  would  not  be  sufficient  to  meet  fully 
the  above-mentioned  payment  of  2.10  per  cent,  to 
the  general  state  budget. 

M.  Friedberg  (a  National  Liberal),  before  the 
Chamber  of  Deputies,  and  M.  de  Gwinner,  director  of 
the  German  Bank,  criticized  this  reform  before  the 
upper  chamber.  Looking  at  the  situation  from  the 
point  of  view  of  a  state  budget  with  a  deficit,  obliged 
to  have  recourse  to  a  loan,  probably  to  a  tax,  they  de- 
manded why  so  important  a  special  railroad  budget 
should  be  constituted  at  all.  The  Minister  of  Finance, 
M.  Lentze,  observed  that  every  year  the  railroads 
demand  reconstruction,  improvements,  additions,  roll- 
ing   stock,    transformation    of    secondary    lines,    etc. 

69 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Either  the  railways  must  live  on  their  resources  or 
they  must  have  recourse  to  a  loan.  The  state  budget 
will  be  protected  from  excessive  fluctuations  in  receiv- 
ing 2.IO  per  cent,  of  the  capital  in  support  of  the 
general  budget.  For  19 lo  it  was  due  to  receive 
35,000,000  francs  ($6,650,000). 

The  ministerial  plan  was  adopted. 

The  operating  ratio  was  61  per  cent,  in  1900;  it 
rose  to  74.62  per  cent,  in  1908.  M.  Lentze  considered 
it  a  triumph  when  it  fell  to  68.99  per  cent,  in  1909,  to 
68.50  per  cent,  in  19 10.  It  was  computed  at  68.63 
per  cent,  for  1911.  The  Minister  of  Railways  asserted 
that,  in  face  of  growing  demands  on  the  part  of  em- 
ployees and  of  traffic,  another  rise  must  be  antici- 
pated. 

Despite  the  high  operating  ratio  certain  economies 
have  been  criticized.  Naturally  the  department  has 
been  reproached  with  not  having  treated  its  employees 
fairly.  Its  answer  has  been  that  60  per  cent,  of  the 
total  expenditures  of  the  railroad  are  absorbed  by 
employees.  Thirty-seven  thousand  employees,  or  12.3 
per  cent,  of  the  total  number,  are  earning  from  1,875 
francs  to  2,250  francs  a  year,  and  86,000,  or  29.2 
per  cent.,  are  earning  from  1,500  francs  to  1,875 
francs.  Six  thousand  new  positions  were  created  in 
1912. 

In  Prussia  the  administration  is  strong  and  Parlia- 
ment is  weak.  Therefore  it  is  the  minister  who  says: 
"Our  action  will  continue  to  be  energetic  with  regard 
to  those  groups  trying  to  foment  agitation."  The  De- 
partment of  Railways  jealously  guards  its  employees 

70 


PRUSSIAN    RAILROADS 

from  any  spirit  of  disorder  capable  of  bringing  about 
a  strike.  As  for  the  employees  they  are  bound  by 
the  clauses  in  their  contracts,  which  each  man  reads 
and  signs,  to  hold  themselves  aloof  from  all  agitation 
hostile  to  order. 


n 


CHAPTER  IV 
STATE  RAILWAYS   OF  AUSTRIA   AND   HUNGARY 

1.  Variations  in  the  Government   Railway  Policy   of  Aus- 

tria.— State  Operation  a  Sorry  Affair. — Superiority  of 
Private  Enterprise. 

2.  The  Railv^'ays  of  the  Hungarian  State. — The  Zone  Sys- 

tem.— Political      Aim. — Increasing     Rates. — Insufficient 
Equipment. — Increasing  Expenses. 

I.  The  policy  of  Austria  in  regard  to  the  railways 
has  undergone  many  variations.  In  1850  the  govern- 
ment owned  61.38  per  cent,  of  the  railway  lines.  In 
1855,  however,  imitating  the  example  of  France, 
which  came  to  terms  with  the  important  companies, 
and,  having  need  of  resources,  it  sold  its  railways. 
Hence  in  i860  it  owned  not  more  than  0.44  per  cent., 
and  in  1870  only  0.21  per  cent.  The  economic  devel- 
opment of  Austria  was  slow  ;  the  railroads  not  very 
prosperous.  The  crisis  of  1873  drove  the  government 
to  constructing  railroads.  In  1880  it  owned  17.23 
per  cent,  of  the  lines;  in  1890,  43.51  per  cent.;  and, 
in  1906,  67.95  P^r  cent.,  or  21,600  kilometers  (13,500 
miles). 

The  operation  of  railways  has  been  a  serious  drain 
on  the  state.  In  1906  they  yielded  2.85  per  cent.,  and, 
in  1907,  3.01  per  cent.  But  this  sum  includes  neither 
interest  nor  sinking  fund  charges.     In  fact,  operation 

72 


STATE    RAILWAYS   OF   AUSTRIA    AND    HUNGARY 

of  the  state  railways  has  not  paid  expenses,  and  has 
been  a  burden  upon  the  Treasury.    The  lack  of  receipts 
is  chiefly  due  to  low  freight  rates. 
Charles  Lee  Raper  says  : 

"They  (the  freight  rates)  have  been  much  higher  than 
in  the  United  States,  though  the  character  of  the  traffic 
of  the  two  countries  has  had  much  in  common.  Both 
have  had  a  large  volume  of  the  low  grade  commodities.  It 
would,  therefore,  seem  to  be  fair  to  say  that  the  Austrian 
state  service  has  not  been  notably  successful  in  its  cheap- 
ness." 

The  superiority  of  private  enterprises  in  Austria 
has  been  established  by  an  investigation  conducted  by 
the  British  Board  of  Trade.  Four  private  companies 
have  never  had  to  resort  to  a  guaranteed  reserve  fund. 
During  the  period  1902-1906  one  of  them  did  not 
earn  dividends  on  its  capital  ;  the  second  earned  from 
4  per  cent,  to  5.25  per  cent.,  the  third  from  5.4  per 
cent,  to  6.6  per  cent,  while  the  fourth  earned  from 
II  per  cent,  to  12  per  cent.  And  all  these  companies 
pay  taxes  to  the  state. 

2.  In  1889  Minister  Baross  established  the  zone 
system  in  Hungary.  Bitter  adversaries  of  the  mileage 
(paliers)  system  were  enthusiastic  over  the  idea  of 
introducing  the  zone  system.  The  zones  are  only 
more  extended  units  of  distance  than  the  10  kilo- 
meter (6  miles)  section  of  the  Paris-Lyons-Mediter- 
ranean railway  line  of  France — a  privately  owned 
line.  The  introduction  of  the  system  was  simply  a 
political  move,  for  the  real  object  was  to  attract  to 

73 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Budapest  those  Hungarians  who  lived  in  the  far  cor- 
ners of  the  land,  in  order  to  make  them  admire  the 
capital,  and  thus  give  them  an  exalted  idea  of  the 
greatness  of  their  country.  In  1896,  at  the  time  of  the 
Millennial  Exposition,  the  railroads  carried  for  noth- 
ing, and,  I  understand,  lodged  and  fed  entire  families 
at  Budapest.  However,  as  a  species  of  compensation 
for  its  complaisance  in  thus  accommodating  the  coun- 
try-folk, the  railroad  had  increased  the  price  of  tickets 
for  short  distance  traffic  during  the  preceding  year. 

In  1903  other  changes  took  place.  As  it  has  failed 
to  yield  the  anticipated  results,  Hungary  recently,  in 
large  measure  at  least,  has  abandoned  the  system 
introduced  by  Baross. 

The  average  receipts  per  passenger  per  kilometer  in 
six  European  states  have  been:  (One  heller  equals 
$0,002.) 

Hellers 

Hungarian  railways   2.9 

Austrian  railways   2.8 

Prussian  railways   2.8 

Bavarian    railways    3.0 

Holland  railways   3.4 

Roumanian  railways  4.4 

Financial  returns  upon  the  Hungarian  state  railroads 
were  as  follows  (in  1,000  crowns;  i  crown  equals  20 
cents)  : 

Interest  Net 

Capital  Surplus  at  4%  Surplus 

1888  984,785  37,074  39,391  -2,317 

1898  2,042.613  83,850  81,704  2,146 

1906  2,402,77s  115,543  96,111  19,432 

1908  2,527,863  91,493  101,114  -9,621 

74 


STATE  RAILWAYS  OF   AUSTRIA   AND   HUNGARY 

The  service  upon  the  state  lines  of  Hungary  during 
late  years  has  given  rise  to  numberless  complaints  : 
lack  of  comfort,  insufficient  rolling  stock,  too  frequent 
delays,  and  numerous  accidents.^ 

The  former  secretary  of  the  ministry  of  Commerce, 
Joseph  Szterenyi,  in  an  address  delivered  before  the 
Chamber  of  Deputies  in  191 2,  stated  that  from  1890  to 
1909  the  number  of  passengers  on  the  railways  had  in- 
creased about  300  per  cent.  During  this  period  there 
have  been  years  in  which  the  increase  of  traffic  has 
corresponded  to  the  increase  in  the  number  of  cars 
in  the  following  ratios:  9.5  per  cent.,  as  against  2.5 
per  cent.;  8  per  cent.,  as  against  4  per  cent.;  10.6  per 
cent.,  against  0.5  per  cent.  ;  9  per  cent.,  against  0.5  per 
cent.,  and  even  11  per  cent,  against  o.i  per  cent. 

The  available  number  of  locomotives  is  even  less 
satisfying.  While  the  volume  of  traffic  has  increased 
about  51  per  cent,  the  number  of  locomotives  has  in- 
creased only  about  21  per  cent.  In  1909  it  was  esti- 
mated that  606  more  locomotives  would  be  necessary, 
in  order  to  take  care  of  the  normal  traffic.  A  number 
of  locomotives  then  in  use  were  over  35  years  old.  Al- 
though passenger  traffic  has  increased  in  Budapest,  at 
the  eastern  terminal  about  550  per  cent,  and  at  the 
western  terminal  about  900  per  cent.,  and  although 
freight  traffic  has  grown  approximately  100  per  cent., 
it  is  only  recently  that  any  particular  effort  has  been 
made  to  improve  the  conditions  mentioned. 

From   1865  to   1907  the  operating  ratio  increased 

^  Der  Zonentarif  der  Ungarisclien  Staatsbahnen,  by  Rudolph 
Remengi,  1912.  published  by  J.  Benko,  Budapest.  Discussed  in 
the  Journal  des  Économistes,  July,  1912. 

75 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

from  55  to  yy  per  cent.,  and  amounted  to  80.6  per 
cent,  in  1908. 

Beginning  with  1893  the  cost  of  labor  has  increased 
by  leaps  and  bounds.  In  1904  the  employees  went  on 
strike  and  stopped  the  trains,  asserting  that  the  in- 
crease of  salary  voted  by  the  Chamber  of  Deputies  was 
too  small.  Two  separate  awards  of  an  increase  in 
salary,  the  one  in  1904  the  other  in  1908,  have  brought 
the  total  amount  to  22,000,000  crowns. 

Following  changes  in  the  locomotive  service  in 
1906  there  has  been  an  increase  in  the  consumption  of 
coal  of  about  13  per  cent.,  representing  4,000,000 
crowns,  and  equaling  a  work  increase  of  30  per  cent. 

Maintenance  expenses  of  locomotives  and  cars  give 
the  following  figures  :  per  locomotive,  in  1905,  3,003 
crowns,  and,  in  1909,  4,530  crowns;  per  passenger 
coach,  from  640  to  820  crowns  ;  per  freight  car,  from 
96  to  134  crowns.  The  working  efficiency  of  the 
average  car  has  fallen  from  48  per  cent,  to  37  per 
cent. 

In  1909  the  excess  of  receipts  over  expenditures 
was  less  by  43,000,000  crowns  than  the  sum  neces- 
sary for  interest  and  sinking  fund  charges.  The  zone 
system  has  recently  been  altered,  in  the  hope  of  realiz- 
ing more  than  15,260,000  crowns.^ 

^Journal  des  Transports,  September  28,  1912. 


76 


CHAPTER  V 

ITALIAN    RAILWAYS 

I.  Purchase  of  Italian  Railways. — Operation  by  Private 
Companies. — Government  Interference. — The  Law  of 
June  22,  1905. — Extent  of  the  Italian  System — Efforts 
of  M.  Bianchi. — Railroad  Accounts. — Furnishing  Em- 
ployment.— Waste. — Labor. — Operating  Ratio. — Rates. — 
Special  Tariffs  and  Commodity  Tariffs. — Favors. — Par- 
liamentary Control,  and  the  Position  of  the  Minister. 

At  the  outset  Italy  was  induced  by  political  motives 
to  become  a  railroad  proprietor.  Before  i860  the 
lines  were  only  local.  After  the  adoption  of  the  con- 
stitution of  the  kingdom,  the  state  bought  up  the 
stock  which  was  owned  by  Austria  in  the  northern 
railways,  and  took  over  the  issue  of  the  pre- 
ferred stock  to  continue  the  construction  of  them. 
But  the  government  had  no  capital  at  its  disposal, 
and  had  pressing  financial  needs.  In  1865,  therefore, 
a  law  directed  the  sale  of  the  state  lines  to  private 
companies.  Two  hundred  million  lire  ($38,000,000) 
was  realized  by  the  state  from  the  sale. 

The  existing  system  was  distributed  among  four 
companies,  known  respectively  as  the  West,  the  East, 
the  North  and  the  South,  but  the  division  of  territory 
between    them    was    ill    defined,    and    they    were    at 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

odds  and  enemies.  Moreover,  the  railways  of  upper 
Italy  proved  to  have  been  handed  over  to  two  com- 
panies with  neither  resources  nor  credit.  These  lines 
were  therefore  repurchased  by  the  state  in  1875-1876 
for  political  reasons,  and  the  state  took  possession  in 
1878.  The  proprietors  of  the  southern  lines  became 
known  as  the  Adriatic  Company  in  1885.  For  a  time 
these  lines  were  not  interfered  with. 

In  1878  3,000  kilometers  of  the  5,100  kilometers 
of  railroad  in  Italy  belonged  to  the  state.  The  minis- 
ters (Minghetti  and  Spaventa)  who  had  negotiated  the 
purchase,  had  intended  that  the  state  railways  should 
be  operated  by  private  companies  acting  as  government 
agents.  In  1878  a  new  ministry  appointed  an  investi- 
gating commission  which,  at  the  end  of  three  years  of 
work,  submitted  a  monumental  report  (1881)  con- 
taining the  recommendation  that  the  state  railways  be 
leased  to  private  companies  for  a  fixed  period.  The 
commission  declared  most  emphatically  that  the  state 
ought  not  to  operate  them  itself  : 

i.°  Because  the  state  performs  very  few  functions 
with  greater  efficiency  or  at  a  lower  cost  than  private 
enterprise  is  able  to  do. 

2.°  Operation  of  railways  by  a  state  is  more  difficult 
than  by  private  companies,  a  conclusion  clearly  estab- 
lished by  the  investigations  made  by  the  commission. 

3.°  The  state  is  far  more  apt  than  are  private  com- 
panies to  force  changes  in  industry  rather  than  to  foster 
natural  development  by  offering  more  efficient  service. 

4°  The  danger  of  political  interference  in  the  ad- 
ministration of  the  railroads  is  very  great. 

78 


ITALIAN    RAILWAYS 

The  secretary  of  the  commission  above  referred  to, 
who  became  Minister  of  Public  Works  in  1884,  leased 
the  state  lines  to  three  companies,  the  Mediterranean, 
the  Adriatic,  and  the  Sicilian,  for  twenty  years,  with 
a  possible  extension  of  the  lease.  Of  the  10,066  kilo- 
meters of  railways  in  Italy  at  that  time,  9,364  kilo- 
meters were  thus  allotted.  In  1905  the  system  covered 
12,827  kilometers  (8,017  miles). 

The  companies  had  paid  the  state  275,000,000  lire 
($52,250,000)  for  their  equipment,  but  on  condition 
that  at  the  expiration  of  the  lease  this  equipment 
should  be  repurchased  from  them.  They  guaranteed 
to  devote  the  5  per  cent,  which  the  state  had  been 
paying  on  the  original  loan  toward  the  upkeep  of  the 
equipment.  The  ordinary  expenses  were  to  be  borne 
by  the  state,  the  extraordinary  expenses  by  the  com- 
pany. This  distinction  provoked  numberless  discus- 
sions. 

A  division  of  profits  between  the  companies  and 
the  state  was  arranged  for,  and  a  reserve  fund  estab- 
lished as  a  provision  for  extraordinary  works.  But, 
after  1884,  in  place  of  an  increase  in  receipts,  there 
was  a  deficit.  Hence  the  government,  instead  of  tak- 
ing in,  was  obliged  to  pay  out. 

In  doubt  as  to  the  future  action  of  the  state  re- 
garding them  the  companies  were  working  under  the 
worst  possible  conditions  in  a  country  deficient  in  ag- 
ricultural and  industrial  products.  The  taxes  were 
heavy  and  the  returns  small.  Then  among  other 
causes  for  the  decreasing  receipts  was  the  rate  reduc- 
tion imposed  by  the  state  upon  the  companies,  although 
theoretically  it  had  no  legal  right  to  propose  such  a 

79 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

Step.  In  the  end  it  was  required  to  make  up  the  dif- 
ference which  resulted.  Transportation  had  been  thus 
ruined  and  at  the  expense  of  the  taxpayers.  Moreover, 
by  continuing  its  intervention  in  the  fear  of  a  strike 
among  the  railroad  employees,  the  government  pro- 
ceeded to  impose  new  burdens  upon  the  companies,  and 
incidentally  introduced  a  spirit  of  insubordination 
among  the  men. 

Conditions  were  now  ripe  for  the  Socialists  in  Par- 
liament, and  they  passed  without  much  discussion  the 
law  of  the  22nd  of  April,  1905,  ordering  the  immedi- 
ate return  of  the  railroads  to  direct  operation  by  the 
state.  This  law  had  been  prepared  by  a  commission 
appointed  in  1898,  whose  report,  in  nine  volumes,  had 
appeared  in  1904-1905.  A  law  of  1907  now  provided 
for  the  purchase  of  2,300  kilometers  (1,438  miles)  of 
the  southern  system. 

The  total  cost  of  the  railroads  in  Italy  had  reached, 
in  1907,  more  than  6,000.000,000  lire.  In  order  to 
rehabilitate  the  system  thoroughly.  Parliament  voted 
a  further  sum  of  910,000,000  lire,  which  had  to  be 
spent  in  Italy  before  191 1.  This  made  a  total  of 
6,910,000,000  lire  ($1,312,900,000).  These  Italian 
lines,  for  each  100,000  square  miles  of  territory,  had 
a  length  of  4.19  miles  in  1875;  5.8  in  1885;  8.8  in 
1900,  and  9.3  in  1907-08,  when  Great  Britain  had 
19.06.  For  every  10,000  inhabitants  there  were  1.7 
miles  of  Italian  railway  in  1875,  2.17  in  1885,  2.9  in 
1895,  and  3.16  in  1907,  in  which  year,  in  the  United 
Kingdom,  the  figure  was  5.58. 

From  the  very  outset  the  disadvantages  of  state 
operation    made   themselves    felt.      The    roads    were 

80 


ITALIAN    RAILWAYS 

never  free  from  unwarrantable  political  influence  and 
the  equipment  was  woefully  defective  for  lack  of 
proper  supervision.^ 

It  had  been  expressly  declared  at  the  time  of  pur- 
chase that  the  state  system  should  have  a  manage- 
ment entirely  free  from  governmental  and  parlia- 
mentary interference.  L'ltalia,  on  the  28th  of  May 
of  the  same  year,  observed  that  Bianchi,  general  man- 
ager of  the  state  railways,  manifested  the  utmost 
skepticism  regarding  the  possibility  of  organizing  state 
railway  operation  in  any  effective  and  positive  manner 
in  Italy. 

His  fears  proved  well  grounded.  Among  other  re- 
forms the  department  was  anxious  to  introduce  a  code 
of  discipline  among  the  workmen  in  its  shops.  The 
deputies,  however,  murmured.  They  took  their  griev- 
ance to  the  Minister  of  the  Interior,  who  referred 
it  to  his  colleague,  the  Minister  of  Public  Works. 
Ultimately  M.  Bianchi  was  informed  that  it  would 
be  necessary  to  revoke  such  measures  as  he  had 
already  taken.  Naturally,  feeling  themselves  thus 
supported,  the  workmen  redoubled  their  insubordina- 
tion, which  spread  also  among  the  mechanics  and  the 
other  employees. 

At  the  end  of  a  year  M.  Bianchi  stated  that  the 
afifairs  of  the  railroad  were  worse  than  they  had  been 
in  the  beginning.  Instead  of  being  held  to  account 
for  the  good  of  the  service,  he  was  completely  under 
the  thumb  of  all  those  whose  interests  were  opposed 
to  the  real  interests  of  the  railroad,  provided  they 
had  sufficient  influence  in  Parliament. 
*  See  The  Economist,  November  4,  1911. 

81 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  net  returns  of  the  state  railways,  passing  over 
the  year  1905- 1906,  when  conditions  were  abnormal, 
are  as  follows: 

Fiscal  Lîre 

1906-1907     43,000,000 

I907-1908 37,000,000 

1908-1909    20,000,000 

I909-191O    37,000,000 

The  increase  from  1908-1909  to  1909-1910  is  to 
be  credited  to  bookkeeping  artifices  designed  to  con- 
ceal the  real  condition  of  afifairs. 

Have  the  improvements  been  proportionate  to  the 
expenditures  since  the  passage  of  the  law  authorizing 
the  purchase? 

The  purchase  was  coincident  with  several  years  of 
economic  activity.  Operating  receipts  increased  29 
per  cent,  in  1905-1906  over  1 900-1 90 1  ;  11  per  cent, 
in  1906-1907  over  1905-1906;  11.5  per  cent,  in  1907- 
1908  over  1906-1907.  But  this  increase  in  receipts 
was  completely  absorbed  by  the  increase  in  expendi- 
tures. 

Before  1905,  when  a  reduction  was  made  in  the 
rate  of  taxation,  the  companies  were  paying  to  the 
government  65,000,000  lire.  To-day  they  would  be 
paying  80,000,000. 

The  law  of  1909  exempted  the  state  railways  from 
certain  expenses,  which,  according  to  Engineer  An- 
cona,  who  is  also  a  deputy,  amounted  to  a  relief  of 
24,000,000  lire.  This  makes  it  necessary  to  reduce 
the  37,000,000  lire — the  last  figure  in  the  above  table 
— to  13,000,000  lire.  A  further  lessening  of  the  ex- 
penses for  1909-1910  comes  from  a  reduction  in  the 

82 


ITALIAN   RAILWAYS 

charges  for  renewal  of  equipment  of  from  4  per  cent, 
of  the  gross  receipts  to  2^  per  cent.  This  makes 
another  reduction  of  from  8,000,000  to  10,000,000 
hre,  which,  added  to  the  24,000,000  mentioned  above, 
amounts  to  a  reduction  of  from  32,000,000  to  34,000,- 
000  lire.  There  were  similar  reductions  in  the  ex- 
penses during  1910-1911. 

The  state  has  received  no  revenue  from  its  capital 
of  6,000,000,000  lire  expended  for  construction,  pur- 
chase, and  restocking  the  railroads.  To  this  sum 
must  be  added,  also,  1,000,000,000  advanced  by  the 
Treasury  for  their  benefit.  The  railroads  have  been 
paying  interest  and  sinking  fund  charges  on  the  loan, 
but  the  department  intends  to  be  relieved  from  this 
responsibility.  It  has  recently  demanded  30,000,000 
lire  a  year  for  the  purpose  of  doubling  its  lines. 

The  law  governing  the  operation  of  Italian  rail- 
roads recognizes  very  distinctly  that  the  fundamental 
duty  of  state  operation  is  to  furnish  work  for  the 
national  foundries  and  lumber  yards.  Naturally,  the 
Railway  department  must  fulfill  this  duty  rather  than 
consult  the  real  needs  and  resources  of  the  railways. 

Contractors  brrng  all  possible  influence  to  bear 
upon  the  deputies,  who  care  for  nothing  but  public 
opinion.  If  there  are  no  orders  there  is  no  work  for 
the  employees  for  whom  the  state  is  bound  to  furnish 
work.  Moreover,  shutting  down  shops  means  ruin  for 
the  manufacturers.  Therefore,  the  minister  orders 
rolling  stock  without  troubling  himself  to  provide  sid- 
ings. Whereas,  in  1899,  the  companies  possessed  an 
average  of  62  meters  of  siding  per  empty  car,  the 

83 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

state,  in  1909-1910,  lowered  the  proportion  to  25.1 
meters,  although  50  meters  had  been  considered 
indispensable  for  each  of  the  9,000  cars  forming  the 
reserve.  Quantities  of  cars  were  falling  to  pieces  on 
the  tracks  for  lack  of  use;  nevertheless,  the  depart- 
ment contracted  for  an  annual  delivery  of  5,000 
cars.  The  manufacturers  persuaded  Minister  Luz- 
zatti  to  raise  this  order  to  8,000  cars.  The  gen- 
eral budget  committee,  however,  had  the  courage 
to  reduce  it  to  4,000  cars,  costing  29,000,000  lire 
($5,510,000). 

Experts  have  estimated  that  all  this  expense  might 
have  been  spared  by  a  more  rational  use  and  better 
care  of  the  existing  cars;  15  per  cent,  of  the  freight 
cars  are  constantly  under  repair,  and  33  per  cent,  of 
the  passenger  cars. 

The  Italian  taxpayers  pay  a  full  third  more  for 
their  rolling  stock  than  if  they  bought  it  abroad. 
Moreover,  there  is  no  redress  for  delays  in  construc- 
tion and  other  errors  on  the  part  of  the  contractors, 
because  political  influence  returns  all  the  fines  pro- 
vided for  in  the  contract.  The  law  says  that  orders 
are  to  be  divided  as  equitably  as  possible  among  the 
various  manufacturers  of  the  same  product.  As  a 
consequence  of  this  provision  we  find  a  legally  or- 
ganized trust,  although  such  coalitions  are  forbidden. 
Naturally,  this  trust  is  not  interested  in  insuring  an 
economical  expenditure  of  the  state  finances. 

Here  are  some  facts  which  have  never  been  denied 
in  parliamentary  debates  :  Old  locomotives  repainted 
are  bought  for  new.  Concrete  ties,  which  break  at 
the  passing  of  trains,  and  soft  spruce  ties,  the  objects 

84 


ITALIAN    RAILWAYS 

of  useless  attempts  at  reën forcement  with  the  aid  of 
injections  of  creosote,  are  bought  by  the  tens  of  thou- 
sands. Orders  of  15,000  kilograms  (33,000  lbs.)  of 
gum  arabic,  200  kilometers  (218,733  yards)  of  red 
velvet,  a  million  straps,  etc.,  are  recorded,  and 
so  on.^ 

Of  course,  labor  plays  an  important  rôle  in  the  in- 
crease of  expenses,  and  in  Italy,  as  in  France,  the  Rail- 
way department  congratulates  itself  upon  this  state  of 
affairs,  an  excuse  being  thus  presented  for  ever  new 
demands  on  its  part.  The  report  for  the  fiscal  year 
1910-1911  says: 

"During  the  period  1902-3-4  there  was  an  average  of 
104,833  employees,  both  regular  and  special,  earning  an 
average  of  1,360  lire  a  year,  while  in  1910-1911  we 
have  had,  on  an  average,  143,295  employees,  includ- 
ing those  engaged  in  repair  work  but  excluding  those  on 
the  navigation  service  lines  in  operation  on  the  i6th  of 
July,  1910,  with  an  average  outlay  for  each  of  1,622  lire. 
If  the  employees  in  1910-11  had  been  paid  at  the  same 
rate  as  in  1902-4  the  expenditures  would  have  been 
lessened  by  37,700,000  lire   ($7,163,000)." 

This  might  be  a  regrettable  state  of  affairs,  from 
the  point  of  view  of  the  railroad  employees,  but  less 
so  from  the  point  of  view  of  the  taxpayers. 

The  operating  ratio  has  fluctuated  as  follows  :   1885, 

67  per  cent.;  1890,  68  per  cent.;  1895,  75  P^^  cent.; 

1903,  68  per  cent.;  1906-1907,  y-}^  per  cent.;  1908-09, 

78  per  cent.     For  distances  up  to  150  kilometers  (94 

*  The  Economist. 

85 


Second  Class 

Third  Class 

8.93 

5.80 

8.12 

5-22 

WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

miles)  passenger  rates,  per  kilometer,  according  to  the 
revision  of  1906,  are  (in  lire)  : 

First  Class 

Express  trains   12.76 

Local  and  other  trains.  .     11.60 

Over  1 50  kilometers  the  rate  is  established  by  zones. 
In  the  case  of  slow  freight  the  rate  has  undergone  few 
changes  since  1885,  and  rather  in  the  way  of  an  in- 
crease.^ 

Italian  railways  make  all  sorts  of  rebates  to  ship- 
pers, according  to  the  amount  of  political  influence 
which  the  latter  can  bring  to  bear.  Seven  hundred 
and  seventy-six  special  tariffs  have  been  promulgated, 
and  1,509  regulating  clauses  in  favor  of  special  firms.^ 
As  for  deputies  and  senators  they  have  a  right  to  free 
transportation  for  themselves,  plus  eighteen  compli- 
mentary tickets  a  year,  twelve  of  which  are  sent  them 
without  their  even  having  to  take  the  trouble  to  ask 
for  them. 

There  are  free  tickets  of  every  kind  and  every  color, 
destined  for  functionaries,  great  and  small,  civil  and 
military.  Still  others,  of  a  special  color,  are  reserved 
for  journalists  and  for  people  who  find  it  convenient 
to  claim  that  title  when  traveling. 

The  law  of  1905  established  an  independent  staflf 
for  the  ministry  of  Public  Works,  composed  of  a  gen- 
eral manager  and  a  council,  consisting  at  first  of  six 
members,  but  later  increased  to  eight.     Five  of  these 

^  Raihvay   Transportation,  by  Charles  Lee  Raper,   1912,  G.  P. 
Putnam's  Sons,  New  York. 
'  The  Economist. 

86 


ITALIAN    RAILWAYS 

latter  are  attached  to  the  department  and  three  repre- 
sent the  citizens.  Members  of  Parliament  are  not 
permitted  to  be  members  of  this  council.  The  Minis- 
ter of  Public  Works  can  annul  the  decisions  and  acts 
of  the  council,  but  he  cannot  substitute  his  own  initia- 
tive. 

According  to  the  nationalizing  party  it  had  "placed 
the  government  railways  outside  of  politics."  But  a 
subsequent  law  of  1907  provided  for  a  superior  com- 
mittee of  control,  composed  of  six  senators  and  six 
deputies,  active  members  of  the  two  chambers  of  Par- 
liament, a  proceeding  which  places  the  minister  in  a 
singular  political  situation. 

In  1907  M.  Giolitti  nominated  a  committee  of  vigi- 
lance, which  was  perhaps  vigilant,  but  which  did  not 
accelerate  the  speed  of  either  passenger  or  freight 
trains.  In  a  response  to  a  Parliamentary  interpellation 
he  assumed  entire  responsibility  for  the  unsatisfactory 
condition  of  the  railway  system.  Parliament  did  not 
want  him  to  resign;  therefore,  the  majority  endorsed 
his  administration.  Hence,  we  have  the  following 
peculiar  state  of  afifairs  : 

If  a  minister  is  so  satisfactory  to  the  majority 
in  Parliament  that  it  desires  to  keep  him  in  office  it 
must  endorse  all  the  shortcomings  of  his  administra- 
tion. If,  on  the  other  hand,  it  has  a  mind  to  over- 
throw a  minister,  it  may  cause  his  downfall  for  a 
delay  of  five  minutes. 


87 


CHAPTER  VI 

THE    RAILWAYS    OF    THE    SWISS    FEDERATION.* 

Purchase  Price  Exceeded  Expectation. — Profit  and  Loss 
Account. — Debt  of  the  Confederation. — Receipts  and 
Expenses. — Operating  Ratio. — Labor. — Economy  at 
the  Expense  of  Passengers  and  Shippers. — Prophecy  of 
Numa  Droz, 

The  promoters  of  the  existing  Swiss  railroad  mo- 
nopoly declared  most  emphatically  that  the  new 
régime  was  not  expected,  primarily  at  least,  to  yield 
financial  results,  but  rather  advantages  for  passengers 
and  shippers.  The  actual  purchase,  however,  was 
limited  to  the  four  great  systems,  the  government 
passing  over  the  lines  of  secondary  importance, 
which  were  less  productive.  Thus  two  classes  of  rail- 
way service  were  established  :  a  first  class,  consisting 
of  patrons  of  the  more  important  roads  and  a  second 
class,  composed  of  users  of  the  small  roads,  which 
could  be  safely  neglected.  The  purchase  price  of  the 
four  great  systems  was  estimated  at  964,000,000 
francs  ($183,160,000).  The  Confederation  has  ac- 
tually paid  1,195,000,000  francs,  or  231,000,000  francs 
more  than  the  figure  first  quoted. 

On  December  31,    19 12,   the  general  construction 

'  See  Journal  des  Économistes,  Dec.  15,  1910,  article  by  M.  Fa- 
varger,  Nov.,  1912.  The  Latest  Accounts  of  the  Federal  Rail- 
ways, July,  1913.    The  Revised  Accounts  of  1912. 

88 


THE    RAILWAYS    OF    THE    SWISS    FEDERATION 

account  amounted  to  1,472,000,000  francs,  to  which 
must  be  added  45,824,000  francs  representing  divers 
expenses,  reduced  by  sinking  funds  to  28,177,000 
francs.  The  total  amount  of  capital  sunk  is  therefore 
1,500,469,000  francs  ($285,089,000).  This  does  not 
include,  however,  the  cost  of  the  St.  Gothard  line. 

Excluding  the  St.  Gothard  line,  the  profit  and  loss 
accounts  are  shown  in  the  following  table  : 

Francs 

1903  Profit   1,030,682 

1904  "  60,735 

1905  "  651,733 

1906  "  4,828,523 

1907  "  2,854,206 

1908  Deficit  2,854,074 

1909  "        6,630,301 

1910  "       1,535.000 

191 1  Profit   5,575,000 

1912  "       9,226,000 

The  cost  of  the  St.  Gothard  line  has  exceeded  hj 
34,000,000  francs  ($6,460,000)  the  provisions  of  the 
estimate  of  1897.  The  expenses  for  completed  works 
and  new  acquisitions,  which  on  December  31,  1909, 
already  amounted  to  218,000,000  francs,  had  jumped 
in  1912  to  292,000,000  francs,  or  74,000,000  francs 
more,  and  at  that  time  there  still  remained  unfin- 
ished works  to  the  extent  of  69,000,000  francs,  while 
expenses  in  the  near  future  for  other  lines  are  in  sight, 
amounting  to  almost  100,000,000  francs.  In  their 
report  to  the  budget  of  19 12  the  board  of  managers 
of  the  Federal  railroads  stated  that  they  were  anxious 
to  reduce  the  yearly  expenses  by  24,000,000  francs, 
but  such  a  reduction  is  out  of  the  question. 

89 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  capital  stock  of  the  four  old  companies  was 
280,000,000  francs  ($53,000,000).  The  dividends 
paid  to  stockholders  had  been  reduced,  or  altogether 
discontinued,  during  the  losing  years,  in  order  that 
the  interest  upon  the  outstanding  debt  might  be  paid. 

In  the  case  of  the  state  railways  there  is  only  one 
stockholder,  the  state;  and,  if  its  railways  lose,  it  is 
the  state,  that  is  to  say,  the  taxpayers  as  a  whole,  who 
must  make  up  the  deficit. 

In  1903  the  consolidated  debt  was  1,075,152,000 
francs.  In  1909  it  had  risen  to  1,344,221,000  francs. 
On  December  31,  19 12,  it  had  again  increased  399,- 
000,000  francs,  or  -^^y  per  cent.  The  interest  on  the 
debt,  which  was  36,000,000  francs  in  1903,  amounted 
to  54,000,000  francs  in  19 12.  Sinking  fund  charges 
on  the  capital  invested  in  the  enterprise  rose  from 
4,300,000  francs  in  1903  to  7,840.000  francs  in  19 12. 

The  surplus  should  have  been  transferred,  at  least 
in  part,  to  a  surplus  fund.  But  the  department,  con- 
sidering the  unreliability  of  future  operations,  has  re- 
fused to  put  in  force  the  provisions  of  the  law  gov- 
erning the  purchase,  and  has  simply  carried  it  over. 
Some  special  expenses,  represented  by  no  actual  value, 
such  as  abandoned  installations,  etc.,  were  still  car- 
ried on  December  31,  1912,  to  the  amount  of  28,000,- 
000  francs  ($5,320,000).  As  long  as  this  balance  is 
not  disposed  of,  it  is  out  of  the  question  to  talk  about 
surplus  of  receipts. 

The  annual  appropriation  of  special  funds,  to  de- 
fray the  expenses  of  maintenance  and  renewals  not 
already  covered  by  operation  in  1906,  was  7,084,000 
francs.     In  1912  it  was  9,325,000  francs. 

90 


THE    RAILWAYS    OF    THE    SWISS    FEDERATION 

There  has  been  no  miscalculation  in  regard  to  re- 
ceipts. They  were  estimated  on  the  basis  of  an  aver- 
age annual  increase  of  3  per  cent.  The  increase  has 
been  4.8  per  cent,  for  passengers  and  4.5  per  cent,  for 
freight. 

During  the  last  three  years  the  gross  earnings  have 
jumped  from  174,000,000  francs,  in  1909.  to  206,- 
000,000  francs,  in  19 12,  or  18  per  cent.  But  these 
earnings  will  be  reduced  after  the  opening  of  the 
Loetschberg  line,  and  as  a  result  of  the  St.  Gothard 
agreement,  which  has  just  been  accepted. 

Moreover,  the  expenses  of  operation  have  increased 
on  an  average  of  6.2  per  cent.,  consequently  at  a  pro- 
portion greater  than  the  receipts,  up  to  1908.  Since 
1909  this  proportion  has  decreased.  The  operating 
ratio  appears  as  follows  : 

1903  65.53% 

1904  67.68% 

1905  66.42% 

1906  67.49% 

1907  69.22% 

1908  72.82% 

1909  70.32% 

1910  65.28% 

191 1  64.26% 

1912  66.76% 

During  the  same  period  the  highest  operating  ratio 
of  the  Paris-Lyon-Mediterranean  line  of  France  (op- 
erated by  a  private  company)  was  53.5  per  cent. 

In  1909  the  secretary  of  the  department  observed 
that,  taking  into  account  the  increase  of  interest, 
extensions,  and  all  those  charges  which,  at  the 
beginning  of  191 2,  bore  so  heavily  upon  the  railway, 

91 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  annual  increase  in  expenditures  would  ultimately 
reach  20,000,000  francs.  This  year  (1913)  it  has 
been  11,270,000  francs. 

After  1906,  following  an  average  rise  in  wages,  to- 
gether with  an  increase  in  the  number  of  employees, 
the  ordinary  labor  expenses  of  the  railroad  exceeded 
by  4,280.000  francs  the  figure  of  the  preceding  year. 

Beginning  with  April  i,  1912,  a  new  law  concern- 
ing salaries  went  into  effect,  which  has  brought  about 
an  annual  increase  of  8,200,000  francs  in  the  ex- 
penses, without  counting  supplementary  payments 
to  be  made  in  the  way  of  pensions  and  sick  and 
other  benefits  established  on  the  basis  of  full  pay. 
Nor  does  it  include  the  increase  in  the  salaries  of 
laborers  paid  by  the  day.  The  total  increase  is  esti- 
mated at  10,000,000  francs. 

From  1904  to  19 10  the  increase  in  labor  expenses 
was  14,370,000  francs,  or  51  per  cent.  For  all 
other  expenses  the  increase  was  only  36  per  cent. 
In  1902  there  were  23,030  employees;  in  1907 
the  number  had  risen  to  31,300.  On  the  ist  of  April 
the  tri-yearly  rise  in  salary  took  effect,  as  provided 
for  by  a  law  fixing  higher  maximums.  This  law  has 
increased  the  annual  expenses  by   10,000,000  francs. 

With  the  object  of  balancing  the  expenses  in 
favor  of  the  employees,  certain  economies  were  ef- 
fected at  the  expense  of  passengers  and  shippers,  such 
as  withdrawal  of  reduced  fares  on  holidays,  decreased 
inspection  of  the  road,  fewer  trains,  speed  of  freight 
trains  lessened,  a  certain  number  of  improvements 
postponed,  and  resistance  to  demands  for  improve- 
ments which  were  not  too  urgent.     Finally  the  de- 

92 


THE    RAILWAYS    OF   THE    SWISS    FEDERATION 

partment  determined  to  increase  the  rates  when  the 
industry  and  commerce  of  Switzerland  are  already 
paying  internal  transportation  taxes  double  those  in 
force  in  neighboring  countries. 

The  nationalizing  of  the  Swiss  railways  has  cer- 
tainly proved  of  advantage  to  the  employees.  But, 
are  state  operations  carried  on  for  the  benefit  of  em- 
ployees or  for  the  public?  Present  conditions  justify 
the  following  prophecy  of  Numa  Droz: 

"Through  this  purchase  our  railroad  policy  is  in  course 
of  stiffening  into  a  set  of  rigid  regulations  prescribed 
by  a  poverty  stricken  department  incapable  of  solving  the 
great  problems  of  the  future  for  lack  of  resources." 


93 


CHAPTER  VII 
RAILWAYS   OF   NEW   ZEALAND 

Capital  Charges. — Receipts  and  Expenditures. — Net  Op- 
erating Profits. — Deficits. — Interest  on  the  Debt. — Pre- 
dominance of  Political  over  Economic  Considerations. 
Causes  of  the  Deficit. — Advancement  According  to 
Seniority. — "The  Government  Strike." — Theory  of 
Operation  at  a  Loss. — Profits  from  State  Mines  At- 
tained Only  at  the  Expense  of  the  Railroads. 

In  i860  the  first  railway  of  New  Zealand  was  con- 
structed by  the  provincial  government  of  Canterbury, 
to  connect  the  town  of  Christchurch  with  the  port  of 
Lyttelton,  separated  from  it  by  a  chain  of  high  hills. 
In  1863  the  provincial  council  of  Auckland  and  Drury 
conceived  the  idea  of  extending  the  line  to  Wellington. 

The  capital  then  and  subsequently  sunk  in  the  rail- 
ways of  New  Zealand,  amounting,  according  to  the 
accounts,  to  £27,762,592  ($135,203,823),  on  the  first 
of  March,  1909,  is  far  from  representing  the  whole 
expense  of  the  project.  £1,289,840  ($6,281,520),  the 
cost  of  lines  not  yet  opened  on  the  31st  of  March, 
1909,  should  have  been  added  to  this  sum.  The  total 
amount  would  thus  reach  £29,052,432  ($141,485,343). 
Moreover,  no  account  was  taken  of  the  interest  paid 
on  the  capital  sunk  in  lines  not  operated  during  the 
thirty-nine  previous  years. 

94 


RAILWAYS    OF    NEW    ZEALAND 

Before  1882  the  amount  of  the  deficits  can  only  be 
surmised  ;  since  that  date  they  have  aggregated 
£4,500,000  ($21,915,000).  The  total  capital  invested 
from  1870  to  1909  has  been  about  £40,000,000  ($194,- 
800,000),  of  which  £23,305,009  ($113,495,000)  was 
paid  out  of  borrowed  money.  The  rest  has  been  raised 
by  the  sale  of  public  land,  and,  above  all,  by  the  aid  of 
taxes — direct  or  indirect. 

Since  1895  the  capital  cost  per  mile  of  open  line  has 
risen  from  £7,703  to  £10,351.  This  increase  is  due  in 
part  to  improvements  upon  the  roadbeds.  In  order 
to  explain  further  such  an  increase  in  cost  it  is  said 
that  the  country  of  New  Zealand  presents  unusual 
difficulties — that  it  is  situated  far  from  the  industrial 
centers  of  the  world,  and  that  construction  is  on  a 
small  scale.  We  might  add  that  railway  construction 
is  considered  as  a  species  of  national  workshop,  de- 
signed to  give  employment  to  laborers  out  of  work; 
that  none  of  the  modern  mechanical  methods  are  em- 
ployed ;  and,  finally,  that  "the  work  is  done  by  the 
government  and  not  by  private  contractors,"  ^ 

The  gross  earnings  of  the  railways  increased  from 
£1,150,851  in  1895  to  £2,929,526  in  1908-1909.  But 
the  expenses  rose  in  even  greater  proportion.  They 
increased  from  £732,160  in  1894-1895  to  £2,114,815 
in  1 908- 1 909.  And,  if  there  had  not  been  a  reduc- 
tion of  the  rate  of  interest  on  government  loans,  the 
deficit  of  1909,  based  on  the  "capital  cost"  of  the  open 
lines,  would  have  been  £323,555,  instead  of  £212,468. 

The  railway  statement,  presented  annually  to  Par- 
liament by  the  Minister  of  Railways,  always  shows  a 
*  State  Socialism  in  New  Zealand,  page  72. 

95 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

"net  working  profit,"  without  any  indication  that  this 
profit  is  always  insufficient  to  pay  the  interest  upon 
the  cost  of  construction  at  the  average  rate  of  interest 
paid  by  the  government  upon  the  public  debt. 

During  the  year  ending  March  31,  1909,  the  rail- 
ways earned  a  "net  profit"  of  2.93  per  cent,  on  a  capi- 
tal of  £27,762,592  ($135,203,823),  the  cost  of  con- 
struction of  the  open  lines.  But,  since  the  average 
rate  of  interest  paid  on  the  public  debt  was  3.7  per 
cent.,  the  "net  profit"  is  absorbed  in  interest  payments, 
and  a  deficit  amounting  to  £212,468  ($1,034,719) 
emerges,  if  interest  is  reckoned  on  the  cost  of  the 
open  lines  only.  But  real  cost  of  construction  includes 
the  cost  of  the  unopened  lines,  making  a  total  of  £29,- 
052,432  ($141,485,343),  reducing  the  "net  profit"  to 
2.80  per  cent.,  and  increasing  the  deficit  by  £262,760 
($1,279,641).  If  the  interest  upon  the  open  lines 
only  is  considered  the  total  deficit  from  1882  to  1909, 
in  round  numbers,  is  £4,500,000  ($21,915,000). 

But  as  a  matter  of  fact,  according  to  the  conditions 
of  its  investment,  interest  at  the  rate  of  4  per  cent, 
should  have  been  paid  on  the  railway  debt.  In  such 
case  the  deficit  in  1908- 1909  would  have  been  for  both 
classes  of  lines  £347,386  ($1,691,769)  ;  while  the  total 
deficit  since  1 881 -1882  would  probably  amount  to  at 
least  £8,000,000  ($35,160,000),  and  perhaps  £10,000,- 
000  ($48,700,000). 

The  deficit  is  due,  above  all,  to  the  principal  line  of 
the  South  Island,  1,299  miles  long.  The  political  in- 
fluence of  this  part  of  New  Zealand,  formerly  much 
greater  than  it  is  to-day,  contributed  to  the  unprofit- 
able railway  construction  in  that  territory.     Sir  Joseph 

96 


RAILWAYS   OF    NEW    ZEALAND 

Ward,  however,  in  explaining  in  Parliament  the  defi- 
cit on  the  lines  of  the  southern  province,  announced 
that  the  lines  of  the  northern  province  would  pres- 
ently need  repairs,  and  that  these  lines  would  present 
in  time  to  come  the  same  deficiencies  as  the  others.^ 

Such  accounts  as  these  show  the  necessity  of  reck- 
oning on  large  sums  for  repairs.  Moreover,  as  the 
Minister  of  Railways,  Hon.  J.  A.  Millar,  said,  in 
1909: 

"The  enhanced  price  of  materials,  increased  rates  of 
wages,  and  expenditures  incurred  on  the  works  enumer- 
ated (track  renewals)  have  had  a  marked  effect  on  the 
maintenance  expenditure,  which  has  steadily  increased 
during  the  past  10  years." 

Further,  the  public  is  exacting,  and  the  government 
must  sacrifice  economic  considerations  to  those  of  a 
political  nature.  Since  1895,  according  to  Sir  Joseph 
Ward,  rate  reductions  have  reached  £850,000,  while 
the  value  of  increased  train  service  has  risen  to  £883,- 
000.  This  reckoning  takes  no  account  of  the  conces- 
sions in  pay  given  to  the  railway  staff,  which  amounted 
to  another  £375,000. 

Although  from  1895  to  1907  the  salaries  of  railway 
employees  were  increased  £375,000  ($1,826,250) 
the  Amalgamated  Society  of  Railway  Servants  com- 
plained that  they  were  receiving  lower  salaries 
than  those  paid  by  private  companies,  while 
their  hours  were  often  much  longer  than  would  be 
tolerated  in  any  private  business  subject  to  the  juris- 
diction of  the  Arbitration  Court. 

'July  26,  1907.     State  Socialism  in  New  Zealand,  p.  74. 

97 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  causes  of  the  deficit  on  the  railways  are: 

1.  The  construction   of   lines   in   advance  of   require- 

ments. 

2.  The  high  cost  of  all  lines. 

3.  Delays   in  construction,   principally  due  to  lack  of 

funds. 

4.  Unprofitable     concessions     in     service,     fares,     and 

freight. 

5.  Rigid  system  of  rates. 

6.  High  cost  of  operation  and  maintenance,  owing,  in 

part,  to  a  certain  lack  of  discipline,  initiative,  and 
efficiency  in  the  railway  service. 

One  of  the  most  serious  causes  of  inefficiency  is  the 
system  of  promotion,  which  is  based  principally  on 
seniority  in  point  of  service,  in  the  hope  of  abolishing 
favoritism  and  other  abuses. 

Government  employees  have  often  been  accused  of 
making  use  of  the  so-called  "government  strike."  The 
general  manager  of  railways  wrote  a  letter  in  1909  to 
the  chief  mechanical  engineer  at  the  Addington  work- 
shops, making  serious  charges  of  inefficiency.  But, 
when  the  investigating  committee  assembled  at 
Christchurch  on  March  11,  1909,  that  same  general 
manager  made  a  pitiful  recantation.  Yet  the  inves- 
tigation had  clearly  demonstrated,  among  other  things, 
the  difficulty  of  discharging  useless  men;  of  finding 
capable  men  to  replace  them  when  discharged  ;  the  lack 
of  encouragement  of  skilled  labor  because  of  the  ab- 
sence of  all  opportunity  for  advancement  or  increase 
in  salary;  the  utter  absence  of  initiative  shown 
by  the  superintendent  of  the  workshops  and  the  lack 

98 


RAILWAYS    OF    NEW    ZEALAND 

of  Up-to-date  appliances  in  certain  lines  of  work.  The 
board  of  inquiry,  the  chairman  of  which  was  a  distin- 
guished engineer,  Professor  R.  J.  Scott,  of  Canter- 
bury College,  arrived  at  the  conclusion  that  the  cost  of 
production  was  greater  at  Addington  than  in  private 
workshops,  and  that  the  amount  of  production 
was  relatively  much  less  in  proportion  to  the  number 
of  hands  employed. 

The  Evening  Post,  of  Wellington,  said  on  June  17, 
1909: 

"Here,  in  miniature,  we  have  the  evils  depicted  which 
are  rampant  more  or  less  in  every  branch  of  the  public 
service  ;  and,  if  the  result  is  that  at  Addington  we  are 
paying  from  30  to  60  or  70  per  cent,  more  for  the  work 
done  than  it  would  cost  us  elsewhere,  it  is  natural  to  in- 
fer that  the  public  service,  as  a  whole,  is  also  costing  far 
beyond  its  value." 

For  the  reasons  given  above  and  a  number  of 
others  the  railways  of  New  Zealand  have  never  earned 
the  full  amount  of  interest  on  the  capital  cost. 

However,  the  state  has  frequently  declared  that 
it  does  not  wish  to  make  the  railways  pay.  That  far 
and  above  such  a  consideration  should  be  placed  the 
service  rendered  to  the  country  in  providing  cheap 
transportation  of  agricultural  products  to  the  markets. 

This  theory  gives  rise  to  two  questions: 

I.  Why  consent  to  recover  3  per  cent,  interest,  in- 
stead of  3.72  per  cent,  (the  rate  on  state  funds),  and 
why  not,  if  this  theory  be  just,  consent  to  recover 
only  2  per  cent.,  or  even  less? 

99 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

2.  Is  the  system  rendering  all  the  service  that  it 
ought  to  render  considering  its  cost? 

Moreover,  arguments  based  on  such  a  theory 
have  the  prime  defect  of  lacking  a  just  standard  of 
measurement.  They  are  marked  by  that  vagueness 
which  so  often  envelops  political  conceptions  and  fos- 
ters the  worst  abuses.  They  serve  to  enable  makers  of 
electoral  platforms  and  members  of  the  most  influen- 
tial groups  to  instigate  expenditures  which  weigh 
heavily  upon  all  their  fellow-citizens,  in  order  to  in- 
crease the  value  of  their  own  property.  Thus  they 
make  their  own  political  strength  increase  the  "un- 
earned increment"  so  violently  denounced  by  the  par- 
tisans of  nationalization  of  the  soil  and  of  state  opera- 
tion of  railways. 

Messrs.  J.  S.  Le  Rossignol  and  W.  D.  Stewart 
have  demonstrated  very  clearly  the  disadvantage  of 
railway  operation  at  a  loss. 

A  railway  line  is  opened  in  a  country  which  cannot 
support  it.  It  is  therefore  a  parasitic  line,  which 
serves  only  to  injure  other  lines,  or  to  be  a  drain  on 
the  whole  body  of  the  taxpayers  of  the  country.  Be- 
cause of  its  cost  it  stands  in  the  way  of  rate  reduc- 
tions and  improvement  in  the  service  of  other  lines. 
It  operates  at  the  expense  of  either  passengers  and 
shippers  or  of  the  taxpayers  of  other  regions. 

How  about  the  development  of  the  country?  But 
railroads  cannot  be  constructed  everywhere.  When 
the  fundamental  rule  is  lost  sight  of,  that  a  region 
ought  to  pay  and  to  pay  enough  to  compensate  for 
losses  during  the  first  years  of  operation,  there  can 
be  no  further  limit  to  extravagant  expenditures.     In- 

lOO 


RAILWAYS    OF    NEW    ZEALAND 

deed,  the  financial  failure  of  the  railways  has  been 
one  of  the  chief  causes  of  the  arrested  development 
of  the  whole  system.  It  took  twenty-three  years  to 
construct  a  section  200  miles  long  on  the  principal  line 
between  Auckland  and  Wellington  ;  and  this  line  is 
self-supporting.  Then  apart  from  the  fact  that  this 
dilatory  method  of  construction  has  added  enormously 
to  the  cost,  it  is  appalling  to  think  of  the  huge  sum 
which  the  country  has  paid  in  interest  during  the  con- 
struction, to  say  nothing  of  the  returns  which  might 
have  been  gathered  in  and  the  settlement  which  would 
have  been  promoted  had  the  work  been  completed 
with  reasonable  dispatch. 

The  resulting  interest  charges  on  the  whole  line 
may  be  readily  conceived.  Instead  of  concentrat- 
ing the  funds  upon  one  line,  and  completing  it, 
they  have  been  frittered  away  in  various  parts  of 
the  country,  in  order  to  conciliate  political  groups. 
The  government,  unable  to  borrow  more  than  a 
certain  sum  annually,  was  at  a  standstill.  If,  on 
the  contrary,  it  had  been  given  an  opportunity 
to  finish  the  profitable  lines,  it  might  have  been  able, 
with  the  resources  that  these  latter  would  have  yielded, 
to  pay  the  interest  on  the  capital  already  borrowed; 
its  credit  would  have  been  improved,  and,  possibly, 
the  resources  thus  at  hand  might  have  permitted  it  to 
provide  for  interest  on  sums  to  be  borrowed  for  the 
further  development  of  the  system. 

Such  a  wasteful  policy,  far  from  aiding  in  the  devel- 
opment of  the  country,  has  actually  retarded  it.  The 
districts  deprived  of  a  railway  have  paid  for  those 
in  other  places,  while  the  slow  rate  at  which  these 

ICI 


WHERE    AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

railroads  have  been  constructed,  together  with  the  ex- 
cessive amounts  which  have  been  paid  out  to  build 
unproductive  lines,  have  deprived  other  districts  of 
any  hope  of  a  railroad  of  their  own.  New  Zealand  has 
at  last  begun  to  comprehend  that  the  construction  of 
lines  which  do  not  pay  is  "bad  policy." 

The  government  has  recently  adopted  a  system  of 
forcing  the  railroads  to  earn  their  own  interest  on  the 
capital  invested.  Sir  Joseph  Ward,  at  Winton,  on  the 
5th  of  May,  1910,  even  mentioned  the  necessity  for 
amortization.  "The  time  for  continued  borrowing  is 
coming  to  an  end,  and  that  of  repayment  is  approach- 
mg. 

Unfortunately  the  government  finds  itself  between 
districts  which  are  demanding  railways,  districts 
which  have  them,  and  which  are  demanding  rate  re- 
duction, improvements  of  transportation  and  other 
favors,  and  employees  demanding  increase  of  salaries 
and  shorter  hours.  The  department  of  labor  insists 
that  railways  be  constructed  in  order  to  give  work 
to  the  unemployed;  while  finance  critics  demand  that 
the  railways  be  compelled  to  provide  for  the  interest 
on  the  capital  invested  in  them,  and  that  they  earn 
enough  to  pay  for  the  new  lines. 

Yet,  despite  all  the  disadvantages  connected  with 
government  operation  of  railways,  no  one  dares  sug- 
gest that  the  lines  may  be  leased  to  a  private  company, 
although  a  provision  for  such  lease  exists  in  the  act 
of  1900  (section  34),  and  such  a  proceeding  would 
undoubtedly  be  the  best  means  of  putting  the  finances 
of  New  Zealand  on  a  sound  basis.  It  has  been  sug- 
gested that  the  administration  of  the  railways  should 

102 


RAILWAYS    OF    NEW    ZEALAND 

be  confided  to  a  commission  of  experts  who  would  be 
independent  of  the  influences  to  which  pubHc  officials 
are  exposed.  Even  this  system,  however,  would  not 
completely  insure  freedom  from  political  interference, 
were  it  only  by  reason  of  its  origin  and  the  necessity 
for  its  renewal.  Such  a  commission  is  also  practically 
certain  to  fall  into  all  the  errors  of  a  bureaucracy. 
The  system  has  been  employed  in  the  Australian  states, 
notably  Victoria,  and  in  New  South  Wales. 

The  government  of  New  Zealand  is  anxious  to 
make  use  of  the  railways  to  carry  out  a  certain  policy 
relating  to  the  distribution  of  population.  The  "stage 
system"  of  railway  rates  worked  out  by  Samuel  Vaile, 
and  discussed  with  much  approval  in  1882,  was  espe- 
cially designed  to  prevent  the  concentration  of  popula- 
tion in  cities  and  to  keep  it  distributed  over  a  vast 
territory,  by  establishing  very  low  rates  in  rural  dis- 
tricts and  high  rates  in  the  urban  districts.  The  ex- 
periment, however,  was  never  made. 

New  Zealand  is  developing.  Little  by  little  the 
profitable  lines  have  been  completed,  and  some  abuses 
have  been  more  or  less  checked.  In  fact,  the  govern- 
ment has  gone  so  far  as  to  ask,  as  a  condition  of  com- 
pleting the  Lawrence-Roxburgh  railway,  that  the 
people  of  the  district  guarantee  at  least  3  per  cent, 
interest  on  the  capital  cost.  But  although  the  re- 
sults of  railway  operation  are  improving,  and  will 
probably  continue  to  improve,  and  although  partisans 
of  state  operation  have  been  untiring  in  their  at- 
tempts to  draw  conclusions  favorable  to  their  argu- 
ment, an  unbiassed  history  of  the  railways  in  New 
Zealand  only  condemns  it. 

103 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Government  property  in  New  Zealand  is  exempt 
from  taxation.  At  each  extension  of  its  activity  the 
amount  of  property  subject  to  taxation  diminishes, 
and,  if  these  enterprises  fail,  the  burden  of  the  tax- 
payers is  increased.  The  principles  of  sound  private 
and  public  finance  are  the  same  everywhere,  and 
profit  from  public  enterprises  is  indispensable  in  order 
to  establish  the  fact  that  they  are  an  advantage  as 
public  investments. 

It  is  not  so  many  years  since  the  state  of  New 
Zealand  undertook  the  operation  of  two  coal  mines, 
known  respectively  as  the  Seddonville  and  Port  Eliza- 
beth mines.  In  1905,  1906,  and  1908  the  first  was 
losing  money.  In  1911  it  lost  £3,219.  In  1910  it 
made  a  profit  of  £194,  and  in  1912,  of  £863.  The 
mine  of  Port  Elizabeth  brought  in  profits  as  high  as 
£21,313  in  1906.  But  its  profits  have  greatly  dimin- 
ished during  the  last  few  years,  and  in  19 12  were 
only  £3,964. 

The  explanation  of  these  profits  is  simple.  Up  to 
1908  the  government  had  bought  166,000  tons  out  of 
a  total  production  of  237,300  tons  for  the  railroads. 
But  it  apparently  found  its  own  coal  too  expensive. 
It  began  to  buy  coal  from  private  dealers.  In  19 12 
it  bought  only  58,000  tons,  out  of  a  total  production 
of  244,500.  Its  mining  profits,  therefore,  have  been 
mainly  derived  from  its  own  railroad. 


104 


CHAPTER  VIII 
GOVERNMENT   RAILROADS   IN   FRANCE 

1.  A  Good  Turn  to  the   Socialists. — The   Impromptu   Pur- 

chase of  the  Western  Railway. — Extravagance. — In 
Aid  of  the  Old  State  System. — Charges  Against  the 
Western  Railroad  Company. — Advantage  to  the  Stock- 
holders.—  The  Operation  Blanche.  —  The  Purchase 
Price. 

2.  Net  Profits  of  Operation  by  the  State  and  by  the  Com- 

pany.— Provisions  and  Rectifications  Serve  Only  to 
Aggravate  the  Situation. — Supplemental  Credits. — 
Share  of  Labor. 

3.  Attacks  Upon  State  Credit. — 4  Per  Cent.  Bonds. 

4.  Conclusions. 

I.  In  Book  I,  Chapter  2,  I  referred  to  the  political 
motives  underlying  the  purchase  of  the  Western  Rail- 
way of  France.  In  order  to  do  a  good  turn  to  the  So- 
cialists, Georges  Clemenceau  socialized  this  system. 

The  Minister  of  Public  Works,  Louis  Barthou,  saw- 
in  the  purchase  a  double  advantage.  It  would  be  a 
sop  to  the  Radicals  and  Radical  Socialists,  for  one 
thing,  and,  in  addition,  it  might  serve  to  cover  the 
deficits  of  the  so-called  old  government  system,  that  is 
to  say  the  lines  already  under  public  management. 
The  deficits  were  not  to  be  hidden,  however.  There- 
fore, Minister  Barthou,  who  had  at  first  repudiated  the 
charge  that  such  deficits  existed,  openly  demanded  that 

10$ 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

the  sum  of  26,600,000  francs  be  set  aside  for  the 
benefit  of  the  old  system  from  the  special  treasury 
account  established  by  the  law  of  December  18,  1908. 

In  November,  1906,  the  government  introduced  a 
bill  for  the  purchase  of  the  Western  Railway,  although 
it  confessed  "that  no  papers  relating  to  such  a  project 
were  on  file  in  the  office  of  the  Minister  of  Public 
Works,"  a  provision  required  by  law.  Nevertheless, 
the  government  demanded  that  a  law  authorizing  the 
transaction  be  passed  by  the  Senate  and  the  Chamber 
of  Deputies,  before  the  end  of  the  year,  in  order  to 
prevent  the  Western  company,  which  had  had  a  profit- 
able year,  from  increasing  its  net  profit. 

The  Senate,  however,  refused  to  be  intimidated  by 
threats.  Its  committee,  through  the  secretary,  M. 
Pre\4et,  who  assigned  the  strongest  possible  reasons 
for  such  action,  rejected  the  purchase  bill,  although  it 
had  already  passed  the  Chamber  of  Deputies,  by  364 
votes  against  187,  76  out  of  the  80  deputies  from  the 
districts  touched  by  the  Western  road  having  voted 
against  the  purchase.  Out  of  46  senators,  44  were 
emphatically  against  the  bill.  Nearly  all  the  chambers 
of  commerce  in  France  were  also  opposed. 

The  argument  advanced  in  favor  of  the  purchase 
was  that  the  Western  company  would  never  be  able  to 
repay  the  advances  that  had  been  made  it  under  the 
name  of  guaranty  of  interest,  that  thus  it  was  running 
on  government  money,  and  hence  it  was  neither  more 
nor  less  than  a  state  department  engaged  in  an  un- 
profitable operation. 

Yet  the  results  of  its  operation  indicated  that  the 
company  was  making  the  greatest  possible  effort  to 

106 


GOVERNMENT    RAILROADS    IN    FRANCE 

extricate  itself  from  the  crisis  of  1901.  The  receipts, 
net  profits  and  interest  guaranties  for  1901,  1904  and 
1906  were  as  follows  (in  francs)  : 

Guaranty  of 
Receipts  Net  Profit  Interest 

19OI      182,910,000  65,236,000  25,740,000 

1904     192,636,000  84,775,000  9,911,000 

1906     207,958,000  89,625,000  5,964,000 


But  the  charge  was  made  that  the  company  had  ob- 
tained its  reduction  in  expenses  only  at  the  cost  of 
its  employees.  I  give  below  the  number  of  employees 
and  the  increase  in  their  salaries  : 

Number  of  Average 

Employees  Total  Wages  Wage 

Dec.   31,    1900 19,849  24,435,000  fr.  1,230  fr. 

Dec.   31,    1905 21,272  27,208,000  fr.  1,279  fr. 

Thus  we  see  that  the  number  of  employees  had 
increased,  as  well  as  the  individual  salaries,  in  spite 
of  the  difficulties  facing  the  company.  Moreover, 
during  this  same  period,  the  sick  and  other  bene- 
fits, bounties  and  allowances  of  various  kinds  had 
grown  from  2,188,000  francs  to  3,580,000  francs,  or 
an  increase  of  1,392,000  francs. 

The  other  argument,  harped  on  ad  nauseam  by  par- 
tisans of  the  purchase,  was  that  on  December  31, 
1905,  the  Western  railway's  debt  to  the  state 
amounted  to  302,569,000  francs,  and  the  interest  on 
it  to  117,300,000  francs,  a  total  of  419,869,000  francs. 

But  the  Western  company  had  equipment  estimated 
at  350,000,000  francs.  By  forcing  it  to  submit  to 
a  deduction  of  30  per  cent,  the  price  the  government 

107 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

would  then  have  to  pay  for  the  road  would  be  245,- 
000,000  francs.  The  difiference  between  419,869,000 
and  245,000,000 — or  174,000,000  francs — was  the 
clinching  argument  on  the  part  of  the  advocates  of  the 
purchase  to  hasten  action  in  order  to  safeguard  the 
interest  of  the  state. 

And  how  did  this  purchase  safeguard  the  interests 
of  the  state?  The  government  took  over  the  road  at 
once;  but  it  increased  its  investment  in  the  Western 
company.  The  guaranty  of  interest  to  the  stockhold- 
ers would  come  to  an  end  in  1935  if  the  company  con- 
tinued to  operate  the  road,  while,  in  case  of  purchase 
by  the  state,  it  would  continue  to  the  end  of  the  fran- 
chise, in  1956.  As  a  result  the  chief  beneficiaries  by 
the  purchase  of  the  Western  road  were  the  stock- 
holders. On  the  day  when  the  road  changed  hands 
its  stock  was  quoted  at  830  francs.  It  subsequently 
fell  to  810  francs,  but  the  Cote  de  la  Bourse  et  de  la 
Banque,  the  Moniteur  des  Intérêts  Matériels,  and  I 
myself  immediately  pointed  out  that  the  advan- 
tages resulting  from  the  purchase  would  raise  the 
value  of  the  stock  to  more  than  1,100  francs.  At  the 
present  time,  June  17,  1913,  it  is  quoted  at  870  francs. 

What  did  the  purchase  cost  the  state?  The  official 
in  charge  of  the  financial  end  of  the  purchase  (Direc- 
teur Général  du  Mouvement  des  Fonds)  declared  that 
*'it  was  not  possible  to  determine  it  even  approxi- 
mately." Yet  the  Minister  of  Public  Works  declared 
that  the  whole  transaction  could  be  called  an  "opéra- 
tion blanche."  That  is  to  say,  it  would  cost  the  state 
nothing. 

We  have  already  referred  to  the  fact  that  the  Senate 

Io8 


GOVERNMENT    RAILROADS    IN    FRANCE 

rejected  the  bill  authorizing  the  purchase  of  the  West- 
ern line.  But  the  Clemenceau  ministry  brought  so 
much  pressure  to  bear  upon  the  senators  that  the  pur- 
chase was  finally  voted  by  a  majority  of  three.  Thus 
the  state  found  itself  charged  with  the  duty  of  furnish- 
ing service  on  a  system  of  9,000  kilometers  (5,625 
miles).  In  the  drafts  and  reports  of  the  committee  in 
charge  of  the  purchase,  various  settlements  of  the 
points  at  issue  between  the  government  and  the  com- 
pany were  discussed,  but  these  were  all  summarily 
eliminated  by  the  law  of  July  13,  1908,  which  ratified 
an  agreement  with  the  Western  company.  The  guar- 
anty of  interest,  which  was  to  expire  in  1935,  was  ex- 
tended to  195 1. 

The  remainder  of  the  sums  due  from  the  company 
upon  bonds,  certificates  and  guaranties  of  interest  was 
fixed  by  law  at  the  sum  of  7,122,000  francs  ($1,353,- 
180).  There  was  no  discussion  of  the  419,869,000 
francs,  nor  even  the  174,000,000  francs.  The  real 
amount  of  the  sums  due  the  company  is  determined 
by  annual  estimates.  The  sum  total  amounts  to  4,972,- 
334,000  francs  ($944,743,000). 

2,  What  are  the  expenses  resulting  from  the  oper- 
ation of  the  system  by  the  state? 

The  state  took  over  the  Western  Railway  January 
I,  1909.  During  the  five  years  of  its  operation  by 
the  company,  from  1904  through  1908,  the  average 
annual  net  profit  was  78,540,000  francs.  In  1909,  the 
first  year  of  state  operation,  this  net  profit  fell  to 
69,970,600  francs;  in  19 10  to  57,169,200  francs;  in 
191 1,  to  30,180,900   francs;   in   1912,   to  21,932,900 

109 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

francs.  From  this  last  figure  a  forecast  may  be 
made  of  what  the  profit  of  1913  will  be.  Therefore, 
and  taking  into  consideration  the  probabilities  of 
19 1 3,  we  have  an  annual  average  of  41,071,000  francs 
for  the  net  profit  from  state  operation,  instead  of 
the  78,540,000  francs  from  operation  by  the  company. 

In  a  statement  outlining  the  special  features  of 
the  budget  of  1912,  M.  Klotz  estimated  that  the  deficit 
on  the  operation  of  the  Western  Railroad  would  not 
exceed  24,000,000  francs  ($4,560,000). 

On  the  other  hand  M.  Chéron's  report  upon  the 
application  for  supplemental  credits  in  favor  of  state 
railways,  submitted  March  29,  1912,  declares: 

"The  demand  for  supplemental  credits,  which  we  are 
about  to  examine,  constitutes  a  confirmation  of  the  esti- 
mates of  the  budget  of  1912.  It  was,  as  we  see  now, 
anticipated.  The  figures  are  none  the  less  very  disturb- 
ing." 

It  was  not  anticipated  in  the  explanatory  state- 
ment of  the  budget  of  1912.  Some  lines  further 
on  M.  Chéron  adds: 

"Progress  has  already  been  made  in  bringing  order 
into  this  department.  It  only  remains  now  to  control 
the  conduct  of  the  enterprise  with  such  vigilance  and 
severity  as  will  reduce  the  truly  exorbitant  deficit  in  the 
profits  of  operation. 

"The  Honorable  Secretary  states  that  the  supplemental 
credits  granted  in  19 12  have  decreased  the  net  profits  of 
the  old  system  by  3,813,400  francs  and  increased  the 
deficit  of  the  Western  line  to  23,389,900  francs. 

"Following  the  reduction  effected  by  the  commission 

no 


GOVERNMENT    RAILROADS    IN    FRANCE 

in  the  ordinary  expenses  of  the  Western  hne,  the  in- 
crease in  the  deficiency  of  the  profits  of  the  system  af- 
fecting the  budget  of  the  ministry  of  Public  Works  is 
discovered  to  be  22,389,900  francs  instead  of  24,529,900 
francs.  The  total  deficit  in  the  profits  from  the  operation 
of  the  system  will  thus  be  found  to  be  for  1912,  and, 
including  the  original  provisions,  81,535,900  francs,  in- 
stead of  83,675,900  francs  allowed  by  the  government. 
If  the  deficit  on  partial  operation  be  added,  or  739,000 
francs,  we  have  a  total  deficiency  for  1912  of  82,874,900 
francs." 

M.  Chéron  is  basing  his  comparison  on  the  year 
1908,  the  last  year  of  the  company,  with  the  present 
condition  of  the  state  railway.  But  the  purchase  had 
been  voted  by  the  Chamber  of  Deputies  in  December, 
1906.  The  company  had  no  more  authority  over  its 
employees,  and  its  condition  was  altogether  abnormal. 
Moreover,  during  the  fiscal  year  1908  expenses  had 
to  be  met  which,  if  the  purchase  had  not  been  made, 
would  normally  have  been  carried  over  into  the  year 
1909. 

The  unfortunate  situation  of  the  Western  company 
serves  rather  to  bring  out  more  clearly  the  serious- 
ness of  the  increase  in  the  expenses  of  the  system 
after  its  purchase  by  the  state. 

It  should  be  noted  further  that  the  actual  deficit  of 
the  company  in  1908  was  only  28,522,675  francs  68, 
to  which  M.  Chéron  adds  3,300,000  francs,  represent- 
ing additional  charges  resulting  from  the  agreement 
regulating  the  sums  due  annually  on  the  purchase. 

As  far  as  the  old  government  railway  system  is 
concerned,  we  can  speak  only  of  the  receipts  and  ex- 

III 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 


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112 


GOVERNMENT    RAILROADS    IN    FRANCE 

penditures  of  operation,  since  the  costs  of  construc- 
tion have  not  yet  been  determined.  Since  1908  the 
net  profit  of  operation  has  considerably  diminished. 

1908                           1912  Increase 

Gross  receipts.  . .  .58,969,41 1  fr.  60  67,150,000  fr.  8,180,588  fr.  40 
Expenses  of 

operation     47,583,176  fr.  05  63,009,900  fr.  15,426,723  fr.  95 


Net  profits    11,386,235  fr.  55      4,140,100  fr.  —7,246,135  fr.  55 

The  receipts  thus  rose  8,000,000  francs,  while  the 
expenses  increased  15,000,000  francs.  Thus  the  same 
condition  is  reached  as  in  the  case  of  the  Western  line. 

M.  Chéron,  after  having  reported  an  annual  in- 
crease in  the  receipts  of  3.50  per  cent,  "as  merely  sat- 
isfactory," remarks:  "The  progressive  increase  of 
expenses  is  the  true  cause  of  the  decrease  in  the  net 
profit  of  operation." 

The  following  table  presents  the  expenses  of  opera- 
tion: 

1908  1912  Increase 

Labor  expenses    .  .24,337,000  fr.         35,655,600  fr.     11,318,600  fr. 
Other   expenses    .  .23,246,176  fr. 05     27,354,300  fr.      4,108,123  fr.  95 


Total   47,583,176  fr.  05    63,009,900  fr.     15,426,723  fr.  95 

These  figures  drew  the  following  criticism  from  the 
secretary  : 

"It  would  be  regrettable  if  the  results  of  the  public 
operation  of  the  Western  line  did  not  convince  the  de- 
partment of  the  necessity  of  keeping  down  the  general 
expenses  of  the  old  system.  We  are  anxious  in  this  case 
also  to  reach,  or  rather  to  return,  to  a  more  favorable  net 
profit.     Outside  of  justifiable  improvements  in  the  posi- 

113 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tion  of  the  employees,  there  are  expenses  which  could  be 
reduced  or  checked. 

3.  "Moreover,  we  would  say  that,  in  the  case  of  the 
old  system,  as  in  that  of  the  Western  line,  the  extraor- 
dinary works  which  for  some  years  have  been  in  course 
of  construction  (involving  an  outlay  of  more  than 
21,000,000  francs  since  1909,  together  with  the  31,000,000 
francs  demanded,  and  with  the  same  excuse,  in  1912), 
ought  to  result  in  a  development  of  traffic,  and,  as  a  direct 
consequence,  a  corresponding  increase  in  the  net  profit." 

From  the  foregoing  extracts  it  would  appear  that 
the  greater  part  of  the  increase  in  expenses  came 
from  the  raising  of  the  wages  and  salaries  of  an  en- 
larged working  force.  The  proportion  varies  for  the 
two  state  railway  systems  from  ^2  to  y^  per  cent,  of 
the  total  increase  in  expenditures.  On  the  newly 
acquired  Western  line,  the  improvements  in  the  situa- 
tion of  the  employees  and  the  regulations  governing 
promotion  represent  together  more  than  two-thirds 
of  the  total  increase  in  labor  expenses. 

While  operating  expenses  from  igo8  to  1912  have 
increased  72,304,000  francs  the  gross  receipts  have 
risen  from  217,645,000  francs  to  244,335,000  francs — 
a  gain  of  only  26,690,000  francs.  The  difference  is 
at  least  45,614,000  francs. 

Moreover  this  deficit  must  continue  to  increase,  be- 
cause this  year  the  state  railways  have  just  issued  300,- 
000,000  francs  ($57,000,000)  of  4  per  cent,  bonds,  on 
which  the  state  must  pay  interest  in  the  future. 

Foreseeing  this  bond  issue  M.  Rouvier  observed, 
in  a  speech  on  the  26th  of  January,  1904: 

114 


GOVERNMENT    RAILROADS    IN    FRANCE 

"You  will  have  to  create  a  special  issue  that  you  will 
probably  term  'railroad'  or  'public  works'  bonds  :  and, 
in  spite  of  your  delusion  that,  because  you  are  going  to 
call  it  by  another  name,  this  new  issue  will  be  sold  on 
the  market  under  the  same  conditions  as  are  private 
bonds,  you  will  have  made  a  serious  attack  upon  the 
credit  of  the  state." 

The  prophecy  has  been  realized.  The  Minister  of 
Finance  did  issue  the  4  per  cent,  bonds.  The  3  per 
cent,  rentes  fell  immediately  to  92.65.  In  October 
they  were  quoted  under  91  francs.  To-day  (June  18, 
191 3)  they  are  83.  The  amount  of  depreciation  thus 
forced  upon  the  3  per  cent,  rentes  has  been  greater 
than  the  300,000,000  francs  borrowed  by  the  state  for 
the  railroad. 

Optimists  prophesied  that  these  state  railway  bonds 
would  pull  up  the  rentes;  they  have  been  pulled,  but 
they  have  been  pulled  down. 

The  question  has  been  asked  :  How  can  a  bond 
issue  of  300,000,000  francs  have  any  influence  upon 
a  market  of  22,000,000,000  francs?  But  there  are  not 
22,000,000,000  francs  in  circulation.  A  portion  of 
this  sum  is  tied  up  in  savings  banks,  insurance  com- 
panies, benevolent  associations,  the  property  of  minors, 
etc.  There  is  only  a  limited  amount  left  to  bear  the 
entire  weight  of  this  issue  of  state  railway  bonds.  The 
4  per  cent,  bonds,  issued  at  503  francs,  have  remained 
at  about  this  figure. 

Some  improvements  have  been  made  in  the  West- 
ern line;  but  in  five  years,  from  1909  to  1913,  the  cost 
of  construction  has  been  718,000,000  francs  ($136,- 
000,000).     According  to   the   partisans   of   the  pur- 

"5 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

chase,    "this   is   the    fault   of   the   Western   company, 
which  deHvered  a  system  in  poor  shape." 

But  at  the  end  of  19 ii  M.  Colson,  formerly  Director 
of  Railroads  in  the  ministry  of  Public  Works,  and  now 
councillor  of  state,  declared  : 

"According  to  such  information  as  we  are  able  to 
gather  from  engineers,  whether  those  of  the  late  Western 
company  or  in  our  own  service,  it  is  clearly  apparent 
that,  down  to  the  final  day  on  which  it  remained  in  the 
hands  of  the  company,  the  whole  system  was  in  ex- 
cellent shape." 

While  his  final  statement  could  not  well  be  more  ex- 
plicit : 

"The  state  of  the  roads  at  the  time  of  purchase  would 
neither  endanger  the  safety  of  travelers  nor  impose  ab- 
normal financial  charges  upon  the  new  management." 

Whereas,  the  net  profit  per  train  kilometer  varied 
in  the  case  of  the  private  companies  from  i  franc  75 
to  2  francs  71,  it  was  only  o  franc  53  upon  the  West- 
ern (state)  Hne,  and  o  franc  44  on  the  old  system.  In 
other  words,  the  state  was  operating  its  new  purchase 
at  a  figure  four  times  higher  than  the  operating  cost 
of  private  lines,  and  its  old  system  at  a  figure  five 
times  higher. 

From  1909  to  19 12,  that  is  to  say,  in  three  years, 
the  decrease  in  net  profit  upon  the  Western  line  has 
been  66  per  cent.,  and  the  operating  ratio  has  in- 
creased to  91  per  cent.  This  is  bad  enough,  but  the 
situation  is  even  worse  on  the  old  system.    During  the 

116 


GOVERNMENT    RAILROADS    IN    FRANCE 

same  period  the  decrease  in  the  net  profit  was  73  per 
cent.,  while  the  operating  ratio  reached  the  enormous 
figure  of  95  per  cent. 

Conclusions 

1.  The  purchase  of  the  Western  Railway  was  a 
political  measure,  designed  to  conciliate  the  Socialists. 

2.  Presented  in  the  light  of  an  operation  that  would 
cost  the  state  nothing,  an  "opération  blanche,"  it  has 
wrought  serious  harm  to  the  state.  The  sole  bene- 
ficiaries have  been  the  stockholders  of  the  Western 
company. 

3.  The  employees  of  the  state  railway  instituted 
a  strike,  and  their  exactions  have  resulted  in  increased 
expenses,  which  have  not  been  offset  by  improvements 
in  the  service. 

4.  The  issue  of  state  railway  bonds  at  4  per  cent, 
has  caused  a  fall  in  3  per  cent,  rentes. 

5.  The  operating  costs  are  even  higher  on  the  old 
state  system  than  on  the  newly  acquired  Western  line. 


117 


CHAPTER  IX 

PUBLIC    VS.    PRIVATE    OPERATION 

Public  vs.  Private  Initiative. — Extent  of  Railroad  Lines 
Operated  by  the  States  and  by  the  Companies. — Oper- 
ating Ratios. — Government  Profits. — Reduction  of 
Rates  in  Great  Britain. — Difificulties  in  Fixing  Re- 
sponsibility  in    State   Railway   Operations. 

The  advocates  of  State  Socialism  say  with  admir- 
able assurance  :  "Wherever  private  initiative  has 
proved  inadequate  the  state  must  step  in." 

Has  the  spirit  of  initiative  been  lacking  in  private 
management  of  railways?  Private  companies  have 
been  forced  to  struggle  for  a  long  time  against  gov- 
ernment opposition,  but  to-day,  although  Prussia  is  a 
flat  country,  where  not  a  single  tunnel  is  to  be  found, 
and  where  the  lines  are  much  easier  to  construct  than 
in  Great  Britain,  the  British  have  a  system  of  more 
than  19  miles  per  100  square  miles,  while  the  Prussian 
system  has  only  16  miles,  or  11  per  cent.  less. 

Did  the  United  States  government  build  the  daring 
lines  which  have  joined  the  two  oceans  ? 

Edwin  Pratt,  in  his  Railways  and  Nationalisation, 
has  demonstrated  that  private  companies  possessed 
more  than  69  per  cent,  of  the  entire  length  of  line  of 
the  existing  railways  in  1908.^     And,  following  a  se- 

'  Railways  and  Nationalization,  by   Edwin   A.    Pratt,    1908. 

118 


PUBLIC    VS.    PRIVATE    OPERATION 

ries  of  debates  with  German  publications,  he  brought 
his  figures  up  to  date  in  the  London  Times,  of  October 
I,  1912.     Here  they  are: 

Rai  1  ways  Percentages 

Continents                            Slate  Companies  Total  Stale  Companies 

Europe     107,600  99,600  207,200  51.9  48. 1 

America    12,200  314,700  326,900  3.7  96.3 

Asia     36,700  26,600  63,300  58  42 

Africa    11,200  11,200  22,400  50  50 

Australia    18,000  1,200  19,200  93.7          6.3 

186,700        453,300        639,000        29.1         70.9 

Thus,  over  two-thirds  of  the  railways  of  the  world 
belong  to  private  companies.  Moreover,  of  the  24,500 
miles  of  railway  belonging  to  the  state  of  British 
India,  18,000  miles  are  operated  by  private  companies. 
In  Holland  all  the  lines  are  operated  by  companies. 
In  Belgium  the  tramway  lines  are  longer  than  the 
state  railways,  and  they  are  operated  by  private  com- 
panies. Lines  in  Great  Britain,  which  have  three, 
four,  or  even  more  tracks,  are  included  in  these  fig- 
ures on  the  line  and  not  the  track  basis.  The  total 
length  of  line  is  23,287  miles.  The  length  of  main 
track,  however,  is  39,851  miles,  and  of  main  track  and 
sidings,  54,311  miles. 

The  greatest  system  in  the  world,  that  of  the  United 
States,  is  owned  by  private  companies.  Mr.  Bryan, 
on  returning  from  Europe  in  1903,  introduced  na- 
tionalization of  railways  into  his  platform,  without 
informing  any  of  the  members  of  the  Democratic 
party  of  his  intention.  This  brilliant  inspiration 
helped  to   destroy  his  chances   for  the  presidency. 

The  operating  ratios  suffice  to  show  that  superior 

119 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

administrative  capacity  is  not  to  be  found  on  the  side 
of  the  several  states  which  exercise  it  in  this  direc- 
tion. 

Operating  Ratios 
State  Railways  : 

1908    Prussia    71  % 

1908  Austria    76  % 

Bavaria    O5   to   72% 

1909  System  bought  by  France  from  the  Western 
company 72  % 

1910  Hungary   80.6% 

French   Private  Companies    (1909)  : 

Compagnie    du    Nord 58  % 

Compagnie  d'I'Est  59  % 

Compagnie  d'Orléans   S3  % 

Compagnie   Paris — Lyon — Méditerranée 53  % 

Compagnie  du  Midi 54% 

We  have  seen  that  the  state  railways  of  Prussia 
have  yielded  revenue  to  the  state  budget.  But  in 
Belgium,  Italy,  Austria,  and  Hungary  they  have  only 
been  a  burden.  The  partisans  of  socialized  railways 
in  France  have  neglected  to  tell  us  what  the  French 
government  railways  have  contributed  to  the  state. 

In  the  various  countries  state  railways  are  exempt 
from  general  taxation.  The  amount,  however,  that 
would  be  collected  from  them  were  they  private  enter- 
prises should,  in  all  justice,  be  added  to  their  expense 
account.  In  France  passengers  and  shippers  upon  the 
state  railway  lines  are  taxed  for  speed.  They  pay  a 
stamp  tax  on  baggage  and  other  receipts,  and  way 
bills,  taxes  upon  vouchers,  and  custom  duties  on  pit 
coal.  The  saving  resulting  from  economies  in  trans- 
portation, as  given  in  the  following  table,  are  reckoned, 
and  with  reason,  among  government  profits  : 

120 


PUBLIC    VS.    PRIVATE   OPERATION 

Old  system   10,51 1,900  f r. 

System  bought  from  the  Western  company    41,422,500 


Total    51,934,400  fr. 

The  following  sums  represent  the  contributions 
made  by  the  French  (private)  railway  companies  to 
the  state  : 


Nord         Est  P.O        P-L-M       Midi 


Second- 


(Millions  of  Francs)  £^^^^ 

Transportation    taxes     17,970    4,493     17,561     32,195    8,503     1,535 

Franchise  taxes  ....       7,782,     7,687      9,867     18,828    5,228       994 

Other  taxes  arising 
from  the  railroad 
industry    1,451     1,238      3,079      3,846       951        192 

Economies  in  trans- 
portation resulting 
from  contract  con- 
ditions         12,40313,872    23,582    31,864    8,908    2,050 

Army    transportation  105       261         911         355         94         48 


Total 39,71127,551     S5,ooo    87,08823,684    4,819 

Or  a  total  of  237,853,000  francs. 

This  burden  per  kilometer  is  a  very  heavy  one. 

Principal  Lines  :                                                     '  Francs 

Nord    10,520 

Est   7,603 

Paris-Orléans    7,i  13 

Paris-Lyon-Méditerranée    9,142 

Midi   6,158 

Secondary  Lines  3,028 

Such  contributions  to  the  state  are  not  to  be  de- 
spised, and,  in  any  comparison  between  the  profits  per 
kilometer  of  the  government  railways  and  those  of 
the  railways  operated  by  French  companies,  they 
should  be  taken  into  account. 

121 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  following  example,  borrowed  from  the  history 
of  the  British  railways,  shows  the  necessity  of  grant- 
ing large  freedom  of  action  to  railways. 

The  railways  of  Great  Britain  had  a  certain  com- 
mercial policy.  Their  general  freight  rates,  much  more 
profitable  than  special  rates,  represented  75  per  cent,  of 
the  total  traffic.  They  had  only  one  regulation  which 
applied  equally  to  all  shippers,  and  this  regulation 
was  enforced.  Before  the  rigid  law  introduced  in 
1891-1892  the  railways,  by  way  of  experiment,  had 
made  a  rate  reduction,  worked  out  with  care,  but  al- 
lowing for  changes  in  its  provisions.  If  there  should 
be  no  increase  in  traffic  as  a  result,  the  rate  was  to 
be  raised.  To-day  such  action  is  no  longer  possible 
except  by  the  authority  of  the  Railway  and  Canal 
Commission.  As  a  consequence,  where  during  the 
decade  1882-1892  rates  had  been  reduced  14  per  cent., 
in  the  decade  that  followed  they  were  reduced  only 
2  per  cent. 

All  state  railway  systems  hold  themselves  more  or 
less  absolutely  free  from  any  responsibility.  We 
have  already  described  the  point  of  view  of  the  Prus- 
sian administration  in  this  regard.  The  Italian  rail- 
ways have  adopted  the  point  of  view  that  any  acci- 
dent involving  loss  to  their  passengers  or  to  shippers 
is  a  dispensation  of  Providence.  In  France  we  have 
seen  a  verdict  of  the  Court  of  Brest,  and  an  opinion 
of  the  Court  of  Rouen,  deciding  against  the  State 
Railway  department,  in  its  attempt  to  escape  liability 
for  damages  by  appealing  to  "circumstances  beyond 

122 


PUBLIC    VS.    TRIVATE    OPERATION 

their  control"  in  cases  in  which  no  private  company 
would  dream  of  offering  such  an  excuse. 

After  having  studied  in  detail  the  great  European 
systems,  an  American,  Mr.  Charles  Lee  Raper,  con- 
cludes :  ^ 

(i)  "That  government  operation  of  the  railways  has, 
with  a  few  notable  exceptions,  as,  for  instance,  the 
Prussian,  not  paid  all  of  its  expenses,  and  that  it  has 
consequently  been  a  burden  upon  the  taxpayers. 

(2)  "That  government  operation,  though  it  has  been 
a  burden  to  the  citizens  as  taxpayers,  has  not  supplied 
them  with  a  particularly  excellent  service — that  its 
freight  service  especially  has  lacked  in  efficiency  and 
practical  adjustability  to  traffic  and  industrial  conditions. 

(3)  "That  government  operation,  though  it  has  not 
been  particularly  efficient,  has  not  been  especially  cheap — 
that  its  freight  rates  have  not  been,  after  all  allowance 
for  difiference  in  traffic  conditions  has  been  made,  as  low 
as  those  upon  a  number  of  the  privately  managed  rail- 
ways." 

State  railways  may  find  themselves  in  one  of  three 
situations  : 

First:  Where  they  are  profitable,  and  their  profits 
are  absorbed  by  the  public  treasury.  In  this  case  the 
interests  of  the  shippers  and  passengers  are  being  sac- 
rificed to  those  of  the  state.  This  is  the  case  in 
Prussia. 

Second  :  Where  they  lose  money  and  the  taxpayers 
make  up  the  deficiency.    Here  the  interests  of  the  tax- 

*  Railway  Transportation. 

123 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

payers  arc  being  sacrificed  to  those  of  shippers  and 
passengers. 

Third  :  Finally  there  is  a  third  case,  in  which  the  in- 
terests of  the  taxpayers,  passengers,  and  shippers  are 
sacrificed  to  the  demands  of  employees.  In  such  cases 
the  railroad  is  being  operated  for  the  benefit  of  the 
employees  and  not  for  that  of  general  transportation. 
This  condition  appears  more  or  less  in  all  state  sys- 
tems. 


124 


CHAPTER    X 

THE   HOLY   CITIES    OF   MUNICIPAL   OPERATION 

I.  British    Cities. — Argument    Against    Economic    Liberal- 
ism.— What  Is  Its  Value? 

The  delusions  of  the  advocates  of  state  and  munici- 
pal ownership  are  generally  set  forth  with  that  same 
naïveté  that  we  have  already  seen  displayed  in  the  re- 
ports upon  the  Western  (state)  Railway.  Whenever 
they  are  at  a  loss  for  examples  of  satisfactory  results 
from  state  monopolies  they  point  to  the  municipal 
operations  of  British  cities. 

They  say  with  emphasis  :  In  the  country  of  Adam 
Smith,  and  of  Cobden,  in  spite  of  the  Manchester 
school,  the  cities  have  shown  themselves  the  boldest 
in  the  world,  in  entering  upon  the  path  of  municipal 
Socialism.  London,  Birmingham,  Glasgow,  and  even 
Manchester  are  holy  cities.  Could  a  more  decisive 
argument  exist  for  the  purpose  of  proving  the  inade- 
quacy of  private  initiative,  or  that  every  industry 
which  is  a  monopoly  in  fact  ought  to  become  a  legal 
monopoly?  Have  they  not  achieved  a  success  which 
proves  that  municipal  authorities  can  administer  as 
well  as,  if  not  better  than,  private  enterprises? 

The  importance  given  to  British  municipal  experi- 
ments forces  me  to  treat  it  in  special  chapters.* 

^  See  Raymond  Boverat  :  Le  Socialisme  Municipal  en  Angle- 
terre et  ses  Résultats  Financiers  (1907),  2nd  éd.,  1911.     Major 

125 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Darwin  :  Municipal  Trade.  Lord  Avebury  :  On  Municipal  and 
National  Trading.  Des  Cilleuls  :  Le  Socialisme  à  travers  les  Siècles. 
D.  Bellet  :  Socialisme  et  Municipalisme.  Hugo  Meyer  :  Munici- 
pal Ozvnership  in  Great  Britain.  Graham  and  Warmington  : 
Taxation,  Local  and  Imperial,  and  Local  Government,  1899. 
Fairlie  :  Municipal  Administration.  Davies  :  Cost  of  Municipal 
Trading.  Municipal  and  Private  Operation  of  Public  Utilities. 
Report  to  the  National  Civic  Federation.  Three  volumes  in 
octavo.  1907,  New  York.  Municipal  Year  Book,  edited  by  Dun- 
can, published  annually  by  the  Adunicipal  Journal. 


126 


CHAPTER  XI 

OPERATION    OF    GAS    AND    ELECTRIOTY    IN    THE 
UNITED    KINGDOM 

1.  Gas  Industry  Founded  by  Private  Individuals. — Munici- 

palities Have  Profited  by  the  Experience  of  Indivi- 
duals.— Two-Thirds  of  the  Gas  Furnished  by  Private 
Companies. — Comparative  Table. 

2.  Electric     Enterprises. — Municipalities     Opposed     to     the 

Introduction  of  Electricity. — Minority  Lighted  at  Ex- 
pense of  Majority. — Financial  Results  of  Gas  and  Elec- 
trical Undertakings. — Variations. — Local  Authorities 
Which  Are  Operating  at   a  Loss. 

I.  In  Major  Leonard  Darwin's  remarkable  study, 
entitled  Municipal  Trade,  I  find  the  following  figures, 
indicating  the  number  of  British  municipalities  which 
have  undertaken  to  supply  gas.  During  the  period 
1 820- 1 839  only  three  municipal  plants  appear.  Dur- 
ing the  period  1870-1879  thirty-eight  municipalities 
adopted  the  system,  and  from  1890  to  1892 — fifteen. 
Not  until  the  gas  industry  had  been  firmly  established 
by  private  companies  did  municipalities  take  a  hand  in 
the  game,  having  then  at  their  disposal  the  labor,  build- 
ings, equipment,  mains,  and  consumers  already  pro- 
vided for  them  by  their  competitors.  Nor  was  this 
change  of  proprietorship  always  attended  by  imme- 
diately disastrous  results.  In  such  cases,  however,  a 
disaster  would  have  been  a  miracle. 

127 


WHERE   AND   WHY   PUBLIC  OWNERSHIP   HAS   FAILED 

An  incident  relating  to  Manchester,  which  has  sup- 
plied gas  since  1824,  l^etrays  the  sang-froid  with 
which  municipal  authorities  are  capable  of  treating 
certain  financial  questions.  On  the  occasion  of  a 
royal  visit  to  that  city,  in  1905,  the  gas  reserve  fund 
was  called  upon  to  provide  £8,897  ($43,300)  to  defray 
the  expense  of  the  king's  entertainment. 

A  Birmingham  municipal  gas  plant  was  the  grand 
municipal  ideal  of  Joseph  Chamberlain.  In  1874  he 
bought  out  the  two  existing  companies  for  £2,000,000 
($9,740,000).  The  measure  was  regarded  at  the  time 
as  a  purely  fiscal  one.  In  1905  Birmingham  was 
charging  2s  6d  per  1,000  cubic  feet  of  gas,  when  a 
private  company  at  Sheffield  was  charging  is  5d. 

Vince  estimates  that  the  favors  granted  to  employ- 
ees represent  an  expense  to  British  taxpayers  equiva- 
lent to  an  increase  in  taxation  of  4  shillings  on  the 
pound,  or  20  per  cent.^ 

Sixty-three  per  cent.,  or  almost  two-thirds  of  the 
public  gas  lighting  service  of  the  United  Kingdom, 
is  furnished  by  private  companies  ;  the  proportion  is 
the  same  for  private  gas  consumption.  In  England 
and  in  Wales  the  proportion  of  gas  furnished  by  pri- 
vate companies  is  69  per  cent.  In  the  United  King- 
dom the  consumers  supplied  by  private  companies 
represent  59  per  cent.  ;  in  England  and  Wales  65  per 
cent. 

The  capital  of  the  companies  has  increased  £2,017,- 
000  ($9,822,790),  while  that  of  local  authorities  has 
*  Vince,  History  of  the  Corporation  of  Birmingham,  1902. 

128 


OPERATION  OF  GAS  AND  ELECTRICITY  IN  GREAT  BRITAIN 

decreased  slightly.  The  gross  receipts  of  the  com- 
panies are  a  little  higher  than  those  of  the  local  author- 
ities, but  the  net  returns  are  less.  It  is  easy  to  grasp 
the  reason  for  this.  In  the  furnishing  of  gas  local 
authorities  have  certain  privileges  not  accorded  private 
companies.  The  price  of  gas  furnished  by  private 
companies  is  2s  gd,  by  local  authorities  2s  6d.  Yet 
the  local  authorities  acknowledge  a  net  revenue  of 
9^  per  cent.,  while  the  companies  show  only  5^/6 
per  cent. 

According  to  a  parliamentary  report  of  January, 
1912,  the  capital  invested  in  gas  works  in  the  United 
Kingdom  amounts  to  £134,000,000  ($653,000,000). 
The  following  table  summarizes  the  accounts  and 
operations  of  these  gas  undertakings  : 

Local  Authorities 

+Inc. 
igio-igii  1909-1910  or  —Dec. 

Number    298  293  +5 

Capital  outstanding    £30,200,512  £30,478,862  — £278,350 

Receipts    £10,829,758  £10,398,263  -H£43i,495 

Expenditure    £7,902,451  £7,710,985  -|-£i9i,466 

Ratio  to  income   (%) 72.95  74-15  — 119 

Net  revenue   £2,927,307  £2,687,278  -^£240,029 

Equivalent    return  on  cap- 
ital   (%)    9H  8^  -l-i 

Gas  sold  (feet  1,000's) . . . .  67,491,765  65,352,790  +2,138,975 

Length  of  mains  (miles)..  14,10214  13.75754  +345 

Consumers   (number)    ....  2,666,146  2,590,279  +75,876 

Public  lamps    349,120  343,021  +6,099 

Approximate       average  s.  d.  s.  d.  s.  d. 

charge  per  1,000  feet. ...  26  2  sH  — o  0% 

129 


WHERE  AND  WHY   PUBLIC   OWNERSHIP    HAS   FAILED 

Companies 

+Inc. 
1910-IT  1909-10  or  —Dec. 

Number   511  Soi  +10 

Capital  outstanding £92,193,191  £90,120,962  +£2,072,229 

Receipts   £20,446,438  £19,951,779  — £494,659 

Expenditure    £15,308,928  £15,097,658  +£211,270 

Ratio  to  income    (%)...  74.87  75.67  — 00.80 

Net    revenue    £5,137,510  £4,854,121  +£283,389 

Equivalent  return  on  cap- 
ital (%)  55/é  sVs  +yi 

Gas  sold   (feet  i,ooo's)  . .  115,342,163  112,334,153  +3,008,010 

Length  of  mains  (miles)  22,020  21,473  +547 

Consumers    (number)    .  .  3,751,703  3,573.796  +177,907 

Public  lamps   371,665  369,882  +1,783 

Approximate    average  s.  d.  s.  d.  s.  d. 

charge  per  1,000  feet. .  29  2  9J4  — o  % 

We  have  no  detailed  report  permitting  us  to  follow 
up  the  comparison  between  the  results  of  operation  by 
private  companies  and  by  local  authorities.  But,  in 
any  event,  although  municipalities  have  been  furnish- 
ing gas  in  Manchester  since  1824,  and  in  Beverly  and 
Carlisle  since  1850,  their  example  has  not  been  fol- 
lowed generally,  since  private  companies  are  still  sup- 
plying gas  to  two-thirds  of  the  population. 

2.  The  first  electric  installations  were  established  at 
Eastbourne  and  Hastings  in  1882,  and  in  London  in 
1885.  Bradford  created  the  first  municipal  plant  in 
1889. 

An  act  of  1882  authorized  local  authorities  to  buy 
up  companies  at  the  end  of  twenty-one  years,  and 
afterward,  at  the  end  of  successive  seven-year  periods. 

130 


OPERATION  OF  GAS  AND  ELECTRICITY  IN  GREAT  BRITAIN 

In  determining  the  purchase  price  only  the  market 
value  of  land,  equipment,  material,  etc.,  was  to  be 
taken  into  account.  No  other  compensation  was  to 
be  paid.  The  object  of  the  act  was  to  prevent  the 
construction  of  any  more  private  plants. 

The  local  governments  were  naturally  anxious  to 
protect  their  gas  plants  against  any  possible  compe- 
tition. The  testimony  of  Mr.  S.  Chisholm,  provost  of 
Glasgow,  before  the  committee  of  1900,  offers  a  typi- 
cal example  of  this  policy.  Municipalities  wanted 
authority  to  construct  electric  plants  only  in  order  to 
prevent  private  companies  from  doing  so. 

The  City  of  York  obtained  a  provisional  order  in 
1892,  but  it  did  not  supply  electricity  until  1900. 
Birkenhead  waited  from  1886  until  1900;  Bristol, 
from  1883  to  1893;  Greenwich,  from  1883  to  1889. 
Four  years  appeared  to  be  the  average  delay,  accord- 
ing to  the  table  submitted  by  Campbell  Swinton, 
which  includes  a  list  of  fifty-four  municipal  electric 
lighting  orders.  The  local  authorities  were  evidently 
more  anxious  to  prevent  action  by  others  than  to 
enter  into  the  business  themselves. 

In  order  to  protect  the  interests  of  its  gas  plant  Bir- 
mingham required,  as  the  condition  of  its  approval  of 
the  Birmingham  electric  supply  company  in  1890,  that 
the  latter  should  supply  only  the  principal  streets  of 
the  city.  In  1898,  however,  the  company  being  pros- 
perous, the  city  decided  to  purchase.^  At  the  time 
the  negotiation  was  completed  the  market  price  of  each 
share  was  £10  los  od,  a  figure  which  would  naturally 

*  Raymond  Boverat,  Le  Socialisme  Municipal  en  Angleterre  et 
Ses  Résultats,  p.  190. 

131 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

form  the  basis  of  the  purchase  price.  The  munici- 
paHty  paid  £420,000  ($2,045,000).  Lost  taxes  and 
sinking  fund  payments  amounted  from  the  beginning 
to  £17,000  ($82,800)  ;  that  is  to  say,  to  £4,000 
($19,000)  more  than  the  profits  realized  by  the  com- 
pany in  1897.  In  March,  1901,  after  fifteen  months 
of  operation,  the  deficit  was  £4,175  ($20,332)  ;  in 
1902-1903  it  had  reached  £4,813  ($23,239).  The 
number  of  consumers  was  5,000,  out  of  a  population 
of  from  600,000  to  700,000;  and  this  small  number 
was  being  supplied  at  the  expense  of  the  whole  body 
of  taxpayers. 

It  is  not  enough  for  an  industry  to  be  municipalized 
in  order  to  bring  in  customers.  Bath  ^  bought  out, 
for  £24,500  ($119,315)  an  enterprise  which  had  cost 
its  founders  £43,000  ($209,400)  ;  but  municipalization 
did  not  furnish  it  with  consumers.  In  1900- 1902  the 
plants  upon  which  the  municipality  had  expended 
£7,800  ($38,000)  were  out  of  use,  and  the  engineer 
estimated  the  sum  necessary  to  put  them  back  into 
condition  at  £70,000  ($341,000).  The  town  found  no 
company  willing  to  take  up  the  business.  It  therefore 
continued  to  operate,  but  at  a  loss.  In  1909-1910  it 
had  lost  £1.335  ($6,500)  and  in  1910-1911  £157 
($764). 

A  local  government  board  return  has  been  de- 
voted to  accounts  of  municipal  enterprises  during  the 
four  years  from  1898  to  March  31,  1902.  We  give 
below  the  results  of  the  gas  and  electrical  enterprises 
to  March  31,  1902: 

^  The  Times  (London),  September  5,  1902. 

132 


OPERATION  OF  GAS  AND  ELECTRICITY  IN  GREAT  BRITAIN 

Gas  Electricity 

Capital   estimate  by  municipalities £24,028,000  £12,508,000 

Capital    demanded    18,497,000  1 1,192,000 

Average   annual  receipts    5,833,000  1,136,000 

Expenses    of    operation 4,465,000  662,000 

Maintenance    and    repairs 79,000  19,000 

Gross    profit    1,289,000  455,000 

Interest  and   sinking   fund 892,000  465,000 

Net  profit   397,000  

Net  loss    10,000 


Gas,  then,  yields  a  profit.  The  gross  profit  was 
£1,289,000,  or  5.4  per  cent,  on  the  capital  invested. 
Any  municipality  might  hope  to  obtain  this  gross 
profit. 

But  if  we  deduct  the  amount  necessary  to  pay  off 
the  capital  and  pay  interest,  we  would  require  a  net 
revenue  of  4.8  per  cent,  on  the  capital  invested.  This 
is  allowing  3^4  per  cent,  for  interest  and  an  amortiza- 
tion period  of  32  years.  Then,  if  4.8  per  cent,  be 
deducted  from  the  5.4  per  cent,  of  gross  profits,  we 
find  that  the  profit  to  the  municipalities  is  about  0.6 
per  cent.  Thus,  the  municipalities  can  reckon  that 
they  make  a  profit  of  a  little  more  than  0.5  per  cent. 
Such  are  the  dazzling  "results  of  numberless  experi- 
ments" in  England. 

But  Major  Darwin  shows  that  an  interest  rate  of 
S%  per  cent,  is  very  low,  and  that  it  has  a  tendency 
to  increase.  It  is  true  that  the  period  of  amortiza- 
tion can  be  lengthened,  but  a  long  period  of  amortiza- 
tion would  be  only  an  added  burden. 

Further,  Major  Darwin  makes  a  relative  calcula- 
tion, based  upon  the  gross  profit  of  municipal  opera- 
tions of  gas  plants  for  several  periods. 

133 


Number  of 
Enterpriaes 

Annual 

Average 

Profits  (%) 

19 

6.3 

9 

5-9 

35 

5-4 

II 

5-3 

9 

4.8 

WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 


Before  i860  

1860-1869  

1870-1879  

1880-1889  

1890-1899  

In  these  calculations  the  gross  profit  for  the  last 
period  is  lower  than  that  during  the  years  1898-1902. 
Major  Darwin  therefore  concludes: 

"If  we  consider  that  local  governments  will  have  to 
pay  4.8  per  cent,  during  the  32  years  of  amortization  of 
capital,  it  can  then  be  said  that  the  profits  on  municipal 
operation  of  gas  plants  will  vary  from  zero  to  a  trifle 
more  than  Yz  per  cent,  at  the  maximum.  In  any  event, 
the  later  municipalizations  of  gas  are  less  profitable  than 
those  which  preceded  them." 

On  March  31,  1904,  out  of  190  municipal  electric 
enterprises  116  claimed  a  profit,  while  74  reported 
losses  amounting  to  £80,504  ($392,054).  The  last 
report  of  Municipal  Trade  is  dated  June  2,  1909,  and 
it  includes  only  a  few  Scotch  cities.  It  gives  no 
details  regarding  capital,  and  only  the  annual  receipts 
and  expenses.  In  Edinburgh,  in  1902-1903,  the  excess 
of  gas  receipts  was  £3,303;  in  1903-1904  the  deficit 
was  £3,397;  in  1904-1905  the  excess  was  £5,965,  but 
it  fell  again  in  1905-1906  to  £1,460. 

For  electricity  the  excess  of  receipts  was  £14,532 
in  1902-1903;  in  1903-1904,  £23,997;  in  1904-1905, 
£21,143;    in  1905-1906,  £16,539. 

In  Glasgow  excesses  of  receipts  occur  regularly, 
but  they  are  subject  to  extreme  variations, 

134 


OPERATION  OF  GAS  AND  ELECTRICITY  IN  GREAT  BRITAIN 

The  municipalities  which  operate  electrical  plants 
have  an  excellent  customer  in  their  tramways,  to  the 
operation  of  which  electricity  was  first  applied  in 
1885. 

According  to  the  Municipal  Year  Book  for  1912 
local  authorities  to  the  number  of  140,  having  ob- 
tained from  the  Board  of  Trade  the  "orders"  pro- 
vided for  by  acts  of  1882,  1888,  1889,  and  1909, 
turned  them  over  to  private  companies,  whereas  only 
20  municipalities  had  made  use  of  the  privilege  to  buy 
out  companies  and  substitute  public  for  private  op- 
eration. 

In  London  the  City  Corporation,  the  Camberwell 
Borough  Council,  and  the  Lambeth  Borough  Council 
have  the  right  to  buy  existing  plants  in  1927,  and  the 
London  County  Council  in  1931. 

In  1910-1911  the  following  47  local  authorities, 
which  were  operating  16  electrical  installations,  were 
doing  so  at  a  loss  : 

Acton,  Alloa,  Bangor,  Barking  Town,  Barnstaple, 
Bath,  Batley,  Beckenham,  Bury  St.  Edmunds,  Bux- 
ton, Cambuslang,  Clacton,  Cleckheaton,  Dorking, 
Dudley,  Elland,  Farnsworth,  Frome,  Gillingham, 
Gravesend,  Hastings,  Hereford,  Heywood,  Hove 
(Aldrington),  Kendal,  Kingston-on-Thames,  Kirk- 
caldy, Leek,  Loughborough,  Maidstone,  Middleton, 
Morley,  Paisley,  Rathmines,  Redditch,  Rhyl,  Staly- 
bridge,  Hyde,  Mossley,  Dukinfield,  Surbiton,  Tod- 
morden,  Torquay,  Wakefield,  Weymouth,  Whitby, 
Whitehaven,  Wigan,  Wishaw,  Worcester. 

A  number  of  local  authorities  were  operating  at  a 
loss  during  the  preceding  year. 

135 


CHAPTER  XII 

TRAMWAYS    IN    GREAT   BRITAIN 

Tramways  in  Great  Britain. — Opposition  of  the  Municipali- 
ties first  to  Tramways,  then  to  the  Omnibus  Auto- 
mobile.— The  Light  Railways  Act  and  the  Municipal 
Journal. — The  Tramways  of  Glasgow  and  the  Street 
Railways  of  Boston. — Birmingham. — The  Tramways  in 
the  United  Kingdom  and  in  the  United  States. — Paraly- 
sis of  Private  Undertakings  and  Weakness  of  Munici- 
palities.— Policy  of  Arbitration  and  Privilege. — Shef- 
field :  Robbing  the  Poor  to  Give  to  the  Rich. — The  Lon- 
don County  Council  and  the  Tramways. — Advantages 
of  Employees. — Reduction  of  Transportation  Rates  at 
the  Expense  of  the  Taxpayers. — Apparent  Profits  and 
Actual  Losses. — Situation  of  the  London  County 
Council  Tramways. 

When  in  1870  Mr.  Shaw  Lefevre  (the  present  Lord 
Eversley)  introduced  a  bill  granting  to  municipalities 
the  right  to  construct  tramways,  he  declared  that  his 
object  was  not  to  "authorize  municipal  operation." 

However,  certain  municipalities  gave  the  bill  a  sig- 
nificance that  its  author  never  intended,  and  by  inter- 
fering with  the  construction  of  tramways  by  private 
companies,  further  action  on  the  part  of  the  towns 
themselves  was,  of  course,  indirectly  promoted.  The 
bill  gave  to  local  authorities  the  right  to  purchase  at  the 
end  of  21  years,  "by  paying  the  value  of  the  tram- 

136 


TRAMWAYS   IN    GREAT    BRITAIN 

ways,  buildings,  lands,  etc.,  but  making  no  allow- 
ance for  past  or  future  profits  of  the  enterprise,  nor 
any  compensation  for  forced  sales  and  other  consid- 
erations." It  was  to  no  purpose  that  it  was  demon- 
strated to  the  committee  of  Parliament  that  a  period 
of  only  21   years  was  too  short. 

As  a  result  the  tramways  already  constructed  suf- 
fered a  heavy  depreciation,  and  English  capital,  which 
might  have  been  devoted  to  enterprises  of  this  char- 
acter, was  invested  in  foreign  countries.  The  large 
cities,  anxious  to  keep  their  citizens  within  their  own 
limits,  for  fear  of  losing  taxpayers,  not  only  forbade 
any  extension  of  the  tramway  lines,  but  likewise  set 
their  faces  steadily  against  the  introduction,  first  of 
steam  tramways,  then  of  electric  tramways. 

The  act  of  1870  did  not  apply  to  Ireland.  There- 
fore a  certain  contractor,  named  Murphy,  was  able 
to  make  a  proposition  to  Dublin  to  establish  electric 
tramways  there,  purchasable  only  at  the  end  of  42 
years,  at  an  increased  valuation  of  33  per  cent.  He 
even  ofifered  to  hand  over  a  fixed  percentage  of  the 
receipts.  But  the  partisans  of  the  municipalization  of 
tramways  in  England  and  Scotland  had  sent  delegates 
to  combat  these  proposals — a  proceeding  which  re- 
tarded their  acceptance  for  two  years. 

The  municipalities  appealed  to  the  act  of  1870  to 
prevent  the  construction  of  tramways  by  private  com- 
panies, and,  as  has  already  been  said,  opposed  every 
method  of  transportation  which  might  compete  with 
their  own  enterprises.  In  1905  the  town  of  Newcastle 
fought  the  introduction  of  omnibus  automobiles  which 
the  Northeastern  Railway  Company  intended  to  op- 

137 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

erate  on  the  streets.  The  committee  of  the  Municipal 
Corporations'  Association  granted  the  desired  author- 
ity, but  with  the  restriction  that  passengers  could  not 
be  taken  up  en  route.  Mr.  Bonar  Law,  parliamentary 
secretary  of  the  Board  of  Trade,  opposed  this  reserva- 
tion, remarking: 

"Even  though  municipalities  are  engaged  in  an  indus- 
try, is  this  a  reason  for  giving  them  a  monopoly  which 
would  not  be  granted  to  anyone  else  in  the  business? 
The  question  whether  the  House  of  Commons  is  to 
govern  the  municipalities  or  whether  the  municipalities 
are  to  control  the  House  is  beginning  to  present  itself." 

The  restriction  was  rejected  by  127  votes  to  no. 

In  1896  Parliament  adqpted  the  Light  Railways 
Act,  designed  to  facilitate  construction  of  such  rail- 
ways in  Great  Britain  ;  its  duration,  however,  was 
limited  to  five  years.  After  that  the  law  would  have 
to  be  repassed  each  year.  The  act  did  not  define  the 
light  railway,  and,  as  a  result,  tramways  have  been  in- 
cluded under  this  title.  Therefore,  they  could  no 
longer  be  purchased  as  provided  in  the  act  of  1870.  At 
the  end  of  1903,  244  requests  had  been  received  for  the 
application  of  the  Light  Railways  Act,  involving  870 
miles  of  lines,  and  the  committee  had  authorized  127 
tramways  having  a  length  of  592  miles.  This  small 
proportion  indicates  the  pressure  brought  to  bear  by 
the  municipalities  upon  the  government  on  the  one 
hand,  and  upon  their  own  citizens  on  the  other. 

Nevertheless,  w^hen  in  1901  Mr.  Gerald  Balfour, 
president  of  the  Board  of  Trade,  submitted  a  bill, 
asking  that  this  act  be  extended  for  a  further  period 

138 


TRAMWAYS   IN    GREAT    BRITAIN 

of  five  years,  he  met  with  the  violent  opposition  of 
the  Municipal  Corporations'  Association,  an  organiza- 
tion designed  to  extend  municipal  powers  and  to  in- 
tercede for  the  towns  with  the  government  and  Par- 
liament. 

The  Municipal  Journal,  the  organ  of  the  Municipal 
Socialists,  observed  :  "We  will  not  permit  this  bill 
to  take  a  permanent  place  on  the  statute  books.  The 
astute  promoters  of  tramways  have  simply  found  in  it 
a  means  of  escaping  the  restrictions  of  the  Tramways 
Act  of  1870,  and  to  avoid  the  embarrassing  purchase 
clause."  The  Journal  continues:  "When,  at  some 
future  time,  the  rural  districts  are  able  to  obtain  their 
current  at  half  the  price  that  it  costs  to  purchase  from 
the  municipal  corporations,  the  consumers  in  the  large 
towns  will  no  longer  be  willing  to  continue  to  pay  the 
present  high  rate.  They  will  demand  to  be  placed  in 
the  same  category  as  the  consumers  outside  the  city, 
and  they  will  have  justice  on  their  side.  What,  then, 
will  become  of  the  municipal  electric  plants?"  After 
two  attempts  Mr.  Balfour  withdrew  the  bill,  the  gov- 
ernment not  daring  to  enter  into  conflict  with  the 
association. 

In  1870  Glasgow  was  granted  authority  to  con- 
struct and  operate  its  tramways.  It  did  not  decide  to 
do  so,  however,  until  1894.  It  then  introduced  a  fare 
of  yid,  and  raised  the  wages  of  its  employees.  In 
1899  ^t  exchanged  horse  cars  for  electric  cars.  Finally 
the  municipality  decided  that  it  had  an  interest  in  own- 
ing all  the  property  along  the  tram  lines  beyond  its 
own  immediate  limits,  and  in  articles  in  the  Times,  for 
1902,  the  town  was  accused  of  having  devoted  to  real 

139 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

estate  transactions  profits  which  should  have  been  ap- 
pHed  to  paying  off  the  debt  on  the  tramways. 

In  1 902- 1 903  Mr.  Hugo  Meyer,  an  American,  for- 
merly a  professor  in  the  University  of  Chicago,  made 
a  comparison  between  the  tramways  situation  in  Glas- 
gow and  that  of  the  street  railways  in  Boston,  the  lat- 
ter owned  by  a  private  company.  The  street  rail- 
ways in  Boston  were  paying  the  city  a  sum  of  $432,- 
500,  or  13. 1  per  cent,  of  the  gross  receipts,  equal  to 
44  cents  per  inhabitant.  The  Boston  elevated  railway, 
serving  a  smaller  population  than  that  of  Glasgow, 
pays  to  the  city  in  cash  and  in  services  $1,550,000,  or 
nearly  13  per  cent,  of  its  annual  income,  which  is  at 
the  rate  of  $1.67  per  inhabitant.  In  1904  Boston  had 
one  mile  of  street  railway  for  every  2,300  inhabi- 
tants, while  Glasgow  could  boast  of  only  one  mile  for 
6,700  inhabitants. 

Birmingham  imposed  such  conditions  upon  the  com- 
pany to  which  it  had  granted  a  franchise  that,  at  the 
end  of  1904,  it  had  only  one  mile  of  tramways  for 
8,700  inhabitants. 

In  1890  the  cities  of  the  United  States  having  more 
than  50,000  inhabitants  had  3,205  miles  of  street  rail- 
way; England  alone,  proportionally,  ought  to  have 
had  3,190.  The  entire  United  Kingdom  had  only  984 
miles.  In  1896  the  United  States  had  10,000  miles  of 
electric  railways  ;  the  United  Kingdom  had  20.  It  is 
admitted  that  the  urban  population  of  the  United 
States  and  that  of  the  United  Kingdom  are  the  same. 
In  June,  1902,  in  the  United  States  there  were  14,000 

Ï40 


TRAMWAYS    IN    GREAT    BRITAIN 

miles  of  electric  railways  within  the  limits  of  cities. 
In  March,  1904,  in  the  United  Kingdom  there  were 
only  3,200.  The  inhabitants  of  British  cities  thus 
have  at  their  disposal  less  than  one-quarter  of  the 
facilities  afïorded  to  the  citizens  of  the  United  States 
by  this  method  of  transportation. 

Mr.  Meyer  sums  up  the  situation  in  his  book,  en- 
titled Municipal  Ownership  in  Great  Britain: 

"The  paralysis  of  private  enterprise  by  reason  of  the 
doctrine  that  the  profits  which  would  be  made  by  public 
utility  undertakings  established  in  the  streets  should 
belong  to  the  public  and  not  to  'private  speculators'  has 
been  complete  and  permanent.  Equally  complete  and 
permanent  has  been  the  powerlessness  of  municipalities 
to  fill  the  void  that  has  been  made  by  paralyzing  private 
enterprise." 

They  keep  others  from  doing  what  they  do  not  do 
themselves.  Such  is  the  true  result  of  the  efforts  of 
municipal  Socialists  in  England. 

Municipalization  involves  an  arbitrary  policy  com- 
bined with  a  régime  of  privilege.  On  the  one  hand, 
we  have  taxpayers  who  are  making  contributions  in 
order  that  a  minority  of  users  may  have  gas  and  elec- 
tricity, or  that  the  passengers  in  the  street  cars  may 
ride  below  cost  ;  on  the  other,  we  have  consumers  of 
gas,  as  at  Nottingham,  who  complain  that  they  are 
forced  to  pay  an  exorbitant  price  for  their  gas  in 
order  that  the  municipality  may  lower  the  taxes. ^  At 
Sheffield  the  town  proposed  to  apply  the  profit  realized 

*  See  H.  Davies,  The  Cost  of  Municipal  Trading. 

141 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

from  the  tramways  to  cover  a  deficit  in  the  local  taxes, 
a  proceeding  which  would  have  necessitated  a  rise  in 
the  general  district  rate  of  2d  on  the  pound.  The 
workingmen,  however,  declared  that,  being  the  true 
users  of  the  tramway,  the  alleviation  of  the  local  taxes 
would  be  at  their  expense — a  policy  tending  to  rob  the 
poor  to  help  the  rich. 

Certain  tramways  were  taken  over  by  London  by 
virtue  of  acts  of  Parliament.  The  courts  interpreted 
these  acts  in  such  a  manner  that  the  stockholders 
found  themselves  despoiled,  while  the  London  County 
Council  was  in  a  position  to  become  proprietor  for  a 
sum  very  much  less  than  the  real  value  of  the  stock. 
It  was  thus  easy  enough  to  draw  at  least  temporary 
profits  from  the  enterprise.  The  Council  subsequently 
leased  the  tramways  north  of  the  Thames  to  a  private 
company,  but  decided  to  operate  the  tramways  south 
of  it  on  its  own  account.  The  value  in  capital  of  the 
two  systems  is  very  nearly  the  same,  £850,000  being 
invested  in  the  northern  system,  and  £896,000  in  the 
southern.  The  northern  system  is  rated  for  tax  pur- 
poses at  £18,000  more  than  the  southern  system. 

In  1900  the  profits  of  the  northern  system  were 
£39,000,  and  those  of  the  southern  £51,774,  a  mag- 
nificent result,  which  might  well  be  cited  in  favor  of 
direct  operation  of  tramways  by  the  city.  But  this 
state  of  afifairs  lasted  only  a  year.  During  the  follow- 
ing years  it  was  reversed  : 

System  Operated      Municipal 
BY  THE  Company  System 

1901     :£40,ISI  ^14,325 

1902     37,450  9,062 

1903   Loss  2,250 

142 


TRAMWAYS    IN    GREAT    BRITAIN 

At  the  time  when  the  London  County  Council  under- 
took the  operation  of  the  southern  system  it  was  yield- 
ing a  "net  profit  of  £64,000  ($311,680). 

Why  this  substitution  of  loss  for  profit?  The  fol- 
lowing reasons  have  been  given  :  Increase  in  salaries 
of  employees;  establishment  of  the  lo-hour  day;  rate 
reductions;  and,  in  1903,  a  slight  increase  in  the  in- 
come tax. 

From  1900  to  1902  the  profits  of  the  southern  sys- 
tem were  £75,161  ;  those  of  the  northern,  £116,601 — < 
an  advantage  on  the  side  of  the  private  company  of 
a  difference  of  £41,440.  The  Statist  finds  a  greater 
difference.  In  an  article  upon  the  tramways  of  Lon- 
don it  observes:  "Since  1894,  the  date  on  which  the 
council  became  interested  in  tramways,  out  of  total 
profits  of  £326,581,  £314,347,  or  96  per  cent.,  have 
been  made  by  the  private  enterprise." 

In  order  to  justify  this  decrease  in  the  receipts  of 
the  municipal  undertaking  the  partisans  of  municipali- 
zation say:  "The  situation  of  the  employees  has 
been  improved."  Very  good;  but  if  this  improvement 
places  municipal  employees  on  a  different  footing  in 
the  way  of  salary  from  that  of  the  employees  of  pri- 
vate companies,  these  municipal  employees  become  a 
privileged  class  at  the  expense  of  the  whole  body  of 
taxpayers;  a  small  number  of  people  thus  profiting  at 
the  expense  of  everybody  else. 

"But  transportation  rates  have  been  reduced." 
Again,  very  good;  but,  if  transportation  constitutes  a 
loss,  the  gift  that  the  London  County  Council  is  mak- 
ing to  the  passengers  it  transports  is  being  paid  for  by 
all  the  taxpayers. 

143 


WHERE   AND   WHY    PURLIC   OWNERSHIP    HAS    FAILED 

Finally,  the  loss  has  been  ascribed  to  the  methods 
of  electric  transportation  recently  introduced.  But 
the  private  companies  have  also  had  to  introduce  this 
change. 

Municipalities  operating  tramways  show  the  same 
weaknesses  as  the  states  which  operate  railroads. 

In  1 905- 1 906  the  southern  system  claimed  a  profit 
of  £4,000  ($19,480).  But  Mr.  Ha  ward,  treasurer 
of  the  London  County  Council,  admitted  before  the 
committee  of  the  Municipal  Corporations'  Associa- 
tion that,  if  the  payment  of  the  penny  tax  per  car 
mile  for  renewal  had  been  enforced,  there  would  have 
been  a  loss  of  £4,000,  or  a  difference  of  £8,000. 

Now  the  London  County  Council  has  declared  that, 
since  1900,  the  southern  system  has  brought  in  £23,- 
900.  The  difference  just  quoted  of  £8,000  would  then 
reduce  this  profit  to  £15,900. 

The  report  of  the  auditor  of  the  Local  Government 
Board  (referring  to  the  accounts  of  1904-1905) 
called  attention  to  the  inadequacy  of  the  fund  devoted 
to  renewal,  as  well  as  to  the  custom  of  holding  the 
tramways  responsible  for  only  a  third  of  the  ex- 
pense of  maintenance  of  that  portion  of  the  streets 
which  they  occupy.  This  latter  custom  of  charging 
the  expenses  of  one  account  to  another  is  an  easy 
method  of  increasing  apparent  profits,  or  of  diminish- 
ing actual  losses.  In  any  state  or  municipal  enter- 
prise it  is  very  difficult  to  obtain  honest  and  intelligi- 
ble accounts. 

The  Statist,  of  June  30,  1906,  proves  that  the 
amount  set  aside  to  provide  for  wear  and  tear  (de- 
preciation), even  during  a  satisfactory  year  of  oper- 

144 


TRAMWAYS    IN    GREAT    BRITAIN 

ation,  is  only  i.i  per  cent.  The  sinking  fund  is  2  per 
cent.  This  makes  a  total  of  3.1  per  cent,  a  year.  The 
figure  is  clearly  inadequate;  but,  if  it  were  increased, 
the  apparent  profits,  small  enough  at  best,  would  be 
changed  into  losses. 

The  following  table  shows  the  situation  of  the  Lon- 
don County  Council  tramways  at  the  end  of  the  fiscal 
year  1910-1911  {The  Municipal  Year  Book,  1912, 
page  618),^  when  the  debt  was  £9,455,500: 

£  s      d 

Receipts  of  operation   2,232,817     15     10 

Expenses  of  operation   1.337,709     13       i 


Excess  of  receipts  over  operating  expenses. .       895,048      2      9 

Capital  charges  amounted  to  £662,231,  leaving  net 
receipts  amounting  to  £232,727,  of  which  £129,229 
was  reserved  for  the  renewal  fund  and  £103,498  for 
the  general  reserve  fund. 

Results  clearly  prove  that  the  London  County 
Council  is  always  operating  at  a  loss.  The  report  of 
the  Highways  Committee  of  the  London  County  Coun- 
cil (see  The  Municipal  Year  Book,  1912,  page  618) 
states  that  the  tramway  receipts  for  the  year  ending 
July  10,  1912,  are  £633,588,  instead  of  £659,274,  the 
figure  for  the  preceding  year,  a  relative  decrease  of 
£26,000  from  the  previous  corresponding  period. 

The  report  declares  that  this  decrease  is  owing  to 
an  increase  in  the  competition  of  other  methods  of 
transportation.     The  tramways  carry  passengers  only 

*  The  Municipal  Year  Book  for  1913  not  having  yet  appeared, 
I  must  make  use  of  the  figures  quoted  in  the  edition  of  1912. 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

during  two  periods  of  the  day,  while  the  railway  tubes 
and  the  motor  omnibuses  travel  through  crowded 
districts  during  the  middle  of  the  day.  Therefore  the 
committee  demands  the  extension  of  its  system  upon 
these  streets.  It  has  submitted  a  preliminary  plan 
which  provides  for  an  added  expenditure  of  £600,000 
($2,922,000). 

Last  year  the  Highways  and  Improvements  Com- 
mittee proposed  the  construction  of  a  tramway  upon 
St.  Paul's  bridge,  extending  to  the  west  end  of  Cheap- 
side.  The  London  County  Council  demanded  that 
the  bridge  be  used  to  connect  the  northern  and  south- 
ern tramway  systems.  The  cost  of  the  project  was 
estimated  at  £1,631,200  ($7,943,900),  to  which  must 
be  added  £350,000  ($1,704,500)  demanded  by  the  city 
for  the  enlargement  of  St.  Paul's  churchyard.  The 
committee  insisted  upon  a  shallow  underground  tram- 
way between  the  southern  end  of  Cannon  street  and 
Cheapside. 

The  whole  report  and  the  plans  that  it  includes  re- 
veal the  mentality  of  these  administrations.  An  enter- 
prise is  not  successful.  This  unpleasant  state  of  affairs 
is  due  to  private  competition.  Then  drive  out  private 
competition.  The  decrease  in  the  receipts  is  not  dis- 
quieting, so  long  as  the  expenses  are  increased.  Con- 
sequently all  sorts  of  extravagant  plans  are  pro- 
posed. 

Such  being  the  financial  results  of  the  operation  of 
the  London  County  Council  tramways,  its  partisans 
enumerated  the  following  advantages  (see  The  Mu- 
nicipal Year  Book,  19 12,  page  619)  : 

146 


TRAMWAYS   IN    GREAT    BRITAIN 

a  The  relief  of  the  tax  rates  from  the  profits  of 
the  enterprise. 

b  Institution  of  all-night  service, 

c  Workmen's  cars. 

d  Rate  reductions  upon  many  lines. 

But,  above  all,  they  insist  upon  the  advantages  ob- 
tained by  employees  from  : 

e  Establishment  of  the  lo-hour  day  for  all  em- 
ployees. 

f   One  day's  rest  in  seven. 

g  Increase  of  salaries. 

h  Furnishing  free  uniforms. 

i    Annual  vacations  of  six  days  with  full  pay. 

j  Since  1909  the  establishment  of  a  conciliation 
board. 

Whence  we  may  legitimately  draw  the  following 
conclusion  :  Municipal  service  must,  above  all,  confer 
advantages  on  its  employees.  Such  undertakings  of 
right  belong  to  them. 

The  Municipal  Year  Book,  of  1912,  publishes  the 
following  summary  of  the  situation  of  the  tramways 
and  light  railways  in  the  United  Kingdom,  accord- 
ing to  the  latest  reports  of  the  Board  of  Trade  : 

Local  Governments 

1910-1911  1909-1910         Increase     Decrease 

Undertakings    owned 

(number)    174  176  

Total     capital    outlay 

(pounds  sterling)  51,147,236  49,568,775  1,578,461 
Lines   open    (miles).  i,744%  ^,7^0%  34 

Cost  per  mile 

(pounds     sterling)  29,323  28,983  340 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

Local  Governments    (Continued) 

1910-1911  1909-igio        Inores8e        Deoreaeo 

Undertakings  worked 

(number)    136  136 

Capital   outlay 

(pounds     sterling)       45,393.284      44,108,250     1,285,034 
Tracks  operated 

(miles)    i,530J^  i,503^  26^ 

Gross  receipts 

(pounds     sterling)         9,996,327        9,487,434       508,893 
Working  expenses 

(pounds      sterling)         6,146,947         5,887,243        259,704 
Ratio  to  income  (per 

cent.)    61.49  62.05        0.56 

Net  revenue   (pounds 

sterling)     3,849,380        3,600,191         249,189 

Equivalent  return 

upon    capital     (per 

cent.)    8^  Sy»  H 

Car       distance       run 

(miles)     221,646,847    212,465,787    9,181,060 

Net   revenue  per  car 

mile     (pence) 4.16  4.06  0.19 

Net  revenue  per  track 

mile    (pounds   ster- 
ling)       2,515  2,394  121 

Passengers        carried 

(number)    2,231,731,639  2,102,438,010  129,293,629 

Average  fare  per  pas- 
senger  (pence)    ...  1.04  1.05  o.oi 

The  following  table  gives  the  figures  for  the  tram- 
ways owned  by  private  companies: 

Private   Companies 

1910-1911  1909-1910         Increase     Decreaae 
Undertakings    owned 

(number)    122  124         2 

Total     capital    outlay 

(pounds    sterling)  .       24,525,590  24,372,884        152,706 

Lines    open     (miles)                  852^  851^              Ij4 

148 


TRAMWAYS    IN    GREAT    BRITAIN 

Private  Companies  (Continued) 

19x0-191 1        1909-1910        Increase        Decrease 
Cost  per  mile 

(pounds    sterling) .  28,760  28,623  137 

Undertakings  worked 

(number)    138  141  3 

Capital  outlay 

(pounds    sterling) .       30,069,172      29,556,166       513,006 
Track  operated 

(miles)    1,059%  tfiSïH  iVi 

Gross  receipts 

(pounds    sterling) .         3,780,674        3,590,467        190,207 
Working  expenses 

(pounds    sterling) .         2,353,994        2,244,871        109,123 
Ratio  to  income 

(per  cent)    62.26  62.52         00.26 

Net  revenue   (pounds 

sterling)     1,426,680        1,345,596         81,084 

Equivalent  return  on 

capital    (per   cent.)  4)4  4^  J4 

Car       distance       run 

(miles)     88,847,396      85,378,890    3,468,506 

Net   revenue   per  car 

mile   (pence)    3.85  3.78  0.07 

Net  revenue  per  track 

mile    (pounds   ster- 
ling)      1,346  1,279  dj 

Passengers        carried 

(number)    675,445,481     640,751,42934,694,052 

Average  fare  per  pas- 
senger (pence)   ...  1.24  1.24 

The  losses  reported  on  tramways  operated  by  local 
governments  in  1910-1911  affected  the  following  2^ 
municipalities  :  Birkenhead,  Blackburn,  Bourne- 
mouth, Colchester,  Darlington.  Dover,  East  Ham, 
Edith,  Ilkeston,  Ipswich,  Kilmarnock,  Lancaster, Leith, 
Lincoln,  Lowestoft,  Maidstone,  Nelson,  Oldham, 
Perth.  Pontypridd,  Rawtenstall,  Southport,  Staly- 
bridge,  Hyde,  Mossley,  Dukinfield,  Widen. 

149 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  above  tables  do  not  give  the  rates  of  deprecia- 
tion. It  is  a  pity  that  The  Municipal  Year  Book  has 
not  included  them.  But,  besides  the  27  local  govern- 
ments which  have  reported  their  losses,  there  are  no 
amounts  recorded  for  depreciation  and  reserve  for 
Derby,  Halifax,  Walthamstow,  West  Ham  (in  1909- 
1910),  Yarmouth. 

In  one  of  the  best  administered  municipalities, 
Birmingham,  the  amount  set  aside  for  depreciation 
and  reserve  is  £24,413  out  of  total  receipts  of  £318,- 
882,  which  is  a  little  more  than  7.6  per  cent.^  At 
Glasgow  it  is  £202,579  out  of  receipts  amounting  to 
£949,488,  or  more  than  21  per  cent.  This  difference 
between  the  two  figures  proves  that  the  first  is  too 
small.  The  advocates  of  municipalization  will  not 
fail  to  point  out  the  Glasgow  figure,  because  it  looks 
well  and  increases  the  average,  but  it  is  altogether 
exceptional. 

^  7.6  per  cent,  on  revenue  is  approximately  equivalent  to  1.5 
per  cent,  on  capital  investment. 


150 


CHAPTER  XIII 

HOUSING  OF  THE  WORKING  CLASSES  AND  PUBLIC 
OWNERSHIP    IN    GREAT    BRITAIN 

Condemnation  for  Sanitary  Reasons. — Expropriation  and 
Sanitation. — Dispossessing  and  Housing. — Gross  Re- 
ceipts Apparently  Concealed. — Bookkeeping  Artifices. — 
Miraculous  Results. — Comparative  Figures. — The  Ac- 
counts of  Birmingham. — Glasgow. — Liverpool. — Man- 
chester. —  Sheffield.  —  Salford.  —  Selecting  Tenants.  — 
Weakness  of  Group  and  Strength  of  Individual  Initia- 
tive.— Edwin  Cannon. — Lord  Rosebery. — "You  Dispos- 
sess ]\Iore  Than  You  House." — Bernard  Shaw. 

In  a  bill  introduced  by  M.  Siegfried,  and  passed  by 
the  French  Chamber  of  Deputies,  on  the  22nd  of 
April,  1912,  as  also  in  a  similar  bill  providing  for  the 
condemnation  of  property  for  sanitary  reasons,  intro- 
duced by  M.  Honnorat,  reference  was  duly  made  to 
the  example  of  England  by  a  citation  of  the  Housing 
of  the  Working  Classes  Act  of  August  18,  1890. 

By  this  act  local  governments  are  authorized  to 
demolish  houses  adjudged  unsanitary,  providing 
compensation  therefor,  it  is  true,  but  with  deductions 
in  the  amounts  allowed,  based  upon  the  different  de- 
grees of  existing  overcrowding  and  lack  of  sanita- 
tion. Later  the  legislators  made  up  their  minds  that 
they  were  not  doing  their  duty  by  simply  putting  the 

151 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

inmates  of  such  houses  into  the  street  in  order  to 
improve  their  condition.  Therefore,  they  proceeded 
to  authorize  the  towns  to  construct  and  even  to  man- 
age houses  for  the  working  classes,  granting  them  a 
right  of  condemnation  in  order  to  procure  the  neces- 
sary land.  If  the  towns  failed  to  provide  as  many 
lodgings  as  they  had  destroyed,  or  if  they  were  not 
provided  until  a  long  time  afterward,  so  much  the 
worse  for  those  who  had  been  dispossessed. 

The  energy  in  this  direction  of  the  London  County 
Council  is  pointed  to  with  admiration  and  enthusiasm 
by  all  interventionalists. 

According  to  its  report  of  October  7,  1911,  the  Lon- 
don County  Council  had  carried  out  altogether  35 
plans  of  expropriation  and  reconstruction  from  1893 
to  March  11,  1911.  It  had  demolished  buildings  con- 
taining nearly  23,000  rooms,  occupied  by  42,000  per- 
sons, and  furnished  rooming  houses  occupied  by  about 
3,000  people,  or  in  all  45,000  tenants.  It  had  con- 
structed buildings  aggregating  6.428  rooms,  2,519 
cottages,  and  three  lodging  houses  with  1.849  bed- 
rooms for  single  men.  Counting  2  persons  to  a  room 
in  these  houses  the  Council  had  thus  lodged  51,836 
persons. 

During  the  period  mentioned  a  capital  of  £2,879,000 
($14,021,000)  had  been  invested  in  these  undertak- 
ings, bringing  in  a  gross  income  of  £207,340  ($1,009,- 
700).  Interest  and  sinking  fund  charges  on  a  60 
years'  basis  absorb  49.60  per  cent,  of  the  receipts.  The 
expenses  of  management,  including  repairs  (7.52  per 
cent.),  taxes,  water,  light,  etc.,  represent  39.78  per 
cent,  of  the  gross  receipts,  uncollectible  rents,  0.19  per 

152 


HOUSING    OF    THE    WORKING    CLASSES 

cent.,  and  losses  on  worthless  paper  9.51  per  cent. 
Thus,  we  dispose  of  99.08  per  cent,  of  the  gross 
receipts,  and  reach  the  following  imposing  result  : 

"This  gigantic  housing  undertaking  is  entirely  self- 
supporting,  without  recourse  to  the  general  resources  of 
the  budget.  It  even  yields  profits  which  vary  from  £500 
to  about  ii,ioo." 

But  all  the  expenses  for  these  municipal  lodgings 
were  not  charged  to  the  municipal  lodgings  account,  as 
the  following  fact  shows  : 

When  the  London  County  Council  paid  £200,000 
($974,000)  for  the  site  of  the  Reid  brewery,  it  entered 
the  property  on  the  housing  account  at  £45,000.  and 
charged  the  remaining  £155,000  to  the  general  im- 
provement account.^ 

For  the  year  ending  March  31,  191 1,  the  total  ex- 
pense for  condemnation  and  construction  was  £2,015,- 
833,  and  the  income  £1,876;  that  is  to  say,  less  than 
nothing.  With  the  addition  of  £120,242  for  adminis- 
tration costs,  the  deficiency  of  revenue  is  £3,950, 
which,  of  course,  more  than  absorbs  the  small  surplus 
noted  above. ^ 

All  right,  say  the  advocates  of  municipalization. 
Business  is  bad,  from  the  financial  point  of  view,  but, 
from  the  standpoint  of  sanitation,  a  service  has  been 
rendered  for  which  too  high  a  price  could  not  be 
paid. 

Out  of  a  population  of  4,537,000  people  the  London 

*  The  Times  (London),  October  21,  1902. 
'Municipal  Year  Book,  1912,  page  752. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

County  Council  has  dispossessed  about  45,000  indi- 
viduals. It  has  housed  51,856.  It  has  not  created 
new  homes;  it  has  only  brought  about  displacements. 
For  it  is  scarcely  probable  that  the  victims  of  these 
forcible  evictions  occupy  the  new  or  reconstructed 
municipal  lodging  houses. 

In  the  report  of  the  Commission  of  the  Municipal 
Council  of  Paris,  on  the  subject  of  cheap  housing,  M. 
Rousselle  and  his  collaborators  say  : 

"We  can  testify  to  the  fact  that  for  several  years 
the  mortality  due  to  tuberculosis,  which  in  Paris  is  still 
34  out  of  every  1,000  inhabitants,  has  fallen  in  London 
from  60  to  19  inhabitants  per  thousand.  This  outcome 
is  owing  in  large  measure  to  the  work  undertaken  by 
the  London  County  Council,  a  work  which  this  single 
result  would  serve  to  justify,  if  such  justification  were 
necessary." 

In  other  words  the  London  County  Council  moves 
I  per  cent,  of  the  population  and  the  mortality  from 
tuberculosis  immediately  drops  66  per  cent. 

This  result  is  truly  miraculous,  but  the  most  striking 
feature  of  the  whole  statement  is  the  tremendous  dis- 
proportion between  given  cause  and  effect. 

In  connection  with  municipal  housing  in  Plymouth 
The  Municipal  Year  Book  ^  gives  the  following  data  : 

Average  Mortality  per  1,000 

1896-1905  1886- 1895  Decrease 

18.47  21.21  2.47 

This  reduction  equals,  we  may  add,  325  lives  saved 

annually. 

^Municipal  Year  Book,  1912,  page  775. 


HOUSING    OF    THE    WORKING    CLASSES 

Now,  the  Council  of  Plymouth  has  constructed: 

1°    264  rooms 

2°    606      " 

Total    870      " 

Without  overcrowding,  not  more  than  two  persons 
can  well  be  counted  to  a  room.  This  gives  us  1,740 
inhabitants  housed  out  of  a  population  of  more  than 
125,000.  It  is  a  little  difficult  to  see  how  the  housing 
of  1,740  people  can  possibly  save  the  lives  of  323  per- 
sons each  year. 

At  Birmingham  buildings  were  demolished  under 
pretext  of  sanitation,  but  the  land  was  not  used  to 
build  new  houses  for  the  working  classes. 

Mr.  J.  S.  Nettleford,  president  of  the  Housing 
Committee  of  Birmingham,  testified,  in  1905,  that  the 
rents  of  the  houses  on  Ryder  and  Lawrence  streets 
were  far  above  the  means  of  the  unfortunate  tenants 
dispossessed  by  the  improvement  committee.  The  re- 
sult of  these  improvements  has  therefore  been  the 
taxation  of  the  many  for  the  benefit  of  a  few  indi- 
viduals,  "a  detestable  commercial  operation." 

The  Estate  Committee  published  accounts  in  which 
there  was  no  mention  whatever  made  of  the  value  of 
the  land  upon  which  the  houses  were  built.  But  a 
little  note  appeared  at  the  bottom  of  the  page,  saying 
that  the  credit  balance  was  equal  to  a  ground  rent  of 
X  per  yard.  At  the  conference  of  June  7,  1901,  a 
councillor  demanded  the  price  of  the  land;  where- 
upon it  was  found  that  an  investigation  would  be  nec- 

15s 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

essary  in  order  to  discover  it.    Mr.  Nettleford  ^  quotes 
the  results  obtained  from  this  investigation: 


Accounts  of  the 
Committee  Ex- 
cluding Price 
of  Land 

Accounts  In- 
cluding 
Price  of 
Land 

Charges  per 
Lodging  and  per 

Week  to  be 
Met  by  Taxation 

Credit  Balance 

Debit  Balance 

Ryder   Street  : 

I       S      d 

i       S     d 

S      d 

22  cottages 

Milk  Street: 

...    83    I    5 

153    3     7 

2     8 

6i   cottages 

140  10    2 

383    19     2 

2     4 

Birmingham  does  not  appear  to  have  kept  up  the 
experiment. 

Glasgow  (802,000  inhabitants)  commenced  razing 
buildings  in  1866.  Naturally,  it  soon  found  itself 
saddled  with  an  over-supply  of  land  which  the  author- 
ities were  anxious  to  sell  at  exorbitant  prices.  As  no 
purchasers  were  to  be  found  under  such  conditions  the 
corporation  decided,  about  1888,  to  build  on  its  own 
account. 

Instead  of  houses  designed  for  workingmen  the  cor- 
poration constructed  types  of  buildings  more  in  keep- 
ing with  the  costly  sites  on  which  they  were  to  be 
built.  On  May  31,  1905,  the  net  cost  of  these  struc- 
tures amounted  to  £1,244,033  ($6,058,440),  while  the 
value  of  the  lands  and  of  the  buildings  was  estimated 
at  £923,165  ($4,495,800).  A  deficit  of  £320,868 
($1,562,640)  was  the  final  result.  Fifty  thousand 
people  were  driven  out  of  the  slums,  but  the  city  did 
not  furnish  them  with  lodgings.  Instead,  it  con- 
structed imposing  houses  and  shops.  Moreover,  while 
awaiting  the  destruction  of  the  condemned  buildings, 

^  A  Housing  Policy. 

156 


HOUSING    OF    THE    WORKING    CLASSES 

the  improvement  trust  continued  to  rent  the  most  un- 
sanitary of  these  buildings. 

In  19 II  the  net  result  of  the  whole  movement  was 
2,149  lodgings  for  the  families  of  the  laboring  classes. 
The  income  from  them  is  £25,000  ($121,750),  which 
allows  a  payment  of  3j4  per  cent,  interest  and  one- 
third  of  the  amortization. 

Liverpool  has  759,000  inhabitants.  It  has  con- 
structed buildings  representing  a  total  of  2,686  lodg- 
ings. Condemnation  and  reconstruction  have  cost 
£1,000,000.  In  1909  the  net  income  was  £21,711, 
or  2.17  per  cent.  The  losses  on  worthless  paper 
amounted  to  6.74  per  cent.  Taking  into  account  re- 
pairs, costs  of  administration,  etc.,  the  city  of  Liver- 
pool collects  i^d  per  pound  sterling  invested. 

In  Manchester  (865,900  inhabitants)  the  financial 
results  have  been  similar  to  those  of  Liverpool.  Be- 
tween 1845  ^"d  1905  the  city  has  rented  7,432  houses, 
3,334  having  been  reopened  after  being  renovated. 
The  net  income  in  1910-1911  was  £7,262  or  3.80  per 
cent,  on  a  capital  investment  of  £189,366.  After 
deducting  interest  and  sinking  fund  there  is  a  loss 
of  one  penny  per  pound. 

Leicester  (227,242  inhabitants)  has  constructed 
two  buildings,  containing  42  apartments. 

Richmond  (36,493  inhabitants)  has  built  135 
houses,  which  are  bringing  in  £2,455  annually  to  off- 
set an  outlay  of  £38,683. 

157 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Folkstone  (36,000  inhabitants)  constructed  50 
houses  and  then  stopped. 

At  Sheffield  the  corporation  bought  a  three-mile 
tract  of  land  on  the  side  of  a  hill,  in  the  neighborhood 
of  very  valuable  real  estate.  It  was  said  that  the 
object  of  certain  municipal  councillors  was  to  play  a 
good  joke  on  the  owners  of  this  property.  In  the  end 
the  city  was  not  only  forced  to  buy  more  land,  in 
order  to  construct  a  roundabout  road,  but,  by  an  order 
of  the  King's  Bench  Division,  it  had  also  to  pay  a 
considerable  indemnity  to  the  aforesaid  proprietors 
for  the  depreciation  in  value  of  their  property. 

Salford  (231,380  inhabitants)  has  displayed  very 
great  activity  along  the  direction  of  housing  the  work- 
ing classes  ;  2,236  houses  have  been  declared  unfit  for 
habitation,  and  2,982  others  have  been  reconstructed. 
In  addition  to  these  efforts,  one  building  containing  69 
apartments,  405  four-room  houses,  134  with  five 
rooms  each,  95  with  6  rooms,  or  in  all  703  lodgings, 
have  been  provided.  Then  a  cheap  hotel,  with  285 
rooms,  and  a  building  containing  32  shops  have  been 
also  built.  The  average  rent  is  i  shilling  4  pence  per 
week,  while  in  the  rest  of  the  city  5s  and  5s  9d  are 
paid  for  a  4-room  lodging. 

But  since  the  motives  which  actuate  committees 
appointed  to  select  tenants  may  be  of  various  kinds 
and  more  or  less  complex,  it  is  customary  for  such 
bodies  to  favor  tenants  who  are  willing  to  offer  a 
higher  rent. 

158 


HOUSING   OF   THE    WORKING    CLASSES 

Here  we  have  the  sketch  of  the  great  municipal 
work  of  cheap  housing  in  Great  Britain.  The  Lon- 
don County  Council  has  evicted  45,000  persons  and 
lodged  51,000.  Fortunately  there  are  still  a  few  in- 
dividuals or  private  groups  who  construct  houses, 
otherwise  the  4,486,000  inhabitants  of  the  city  of 
London,  for  whom  municipal  lodgings  are  not  pro- 
vided, would  be  condemned  to  dwell  in  the  open  air. 

But  the  action  of  the  London  County  Council  has 
at  least  brought  about  one  result,  for,  since  1889,  no 
more  great  associations  are  being  formed  in  London 
for  promoting  public  housing. 

But  has  any  service  been  rendered  to  the  people 
by  this  attempt  to  paralyze  private  initiative? 

"Every  house  which  is  built  by  public  authority," 
says  Mr.  Nettleford,  "prevents  the  construction  of  at 
least  four  houses  which  would  have  been  built  by  indi- 
viduals," and  he  cites  striking  examples  from  Bir- 
mingham, 

"The  partisans  of  municipalization  conduct  you,"  says 
Edwin  Cannon,  "past  thousands  of  houses,  lodging 
tens  of  thousands  of  inhabitants,  to  a  half  dozen  houses 
built  at  a  loss  by  the  municipality  and  then  say  to 
you  solemnly  :  'Private  initiative  is  weak'  ;  when 
all  the  time  the  facts  are  demonstrating  the  strength  of 
private  and  the  weakness  of  municipal  initiative."  ^ 

When  the  inhabitants  of  the  slums  do  not  go  to 
live  in  the  municipal  houses  the  advocates  of  Munici- 
pal Socialism  say:     "But  they  can  occupy  the  lodg- 

*  The  Economic  Outlook. 

159 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

ings  left  vacant  by  those  who  do  come  to  live  in 
them." 

The  dispossessed  are  simply  driven  from  hovel  to 
hovel;  they  are  not  housed.^ 

Lord  Rosebery,  in  a  speech  delivered  at  Shoreditch, 
at  the  ceremony  of  the  opening  of  the  workmen's 
houses,  said  :  "You  have  lodged  300  families,  but  you 
have  dislodged  many  more.  That  seems  to  me  a 
droll  way  to  house  the  poor." 

Socialists  are  acknowledging  the  defeat  of  the 
movement.  Bernard  Shaw,  however,  while  pointing 
out  the  practical  impossibility  of  establishing  municipal 
lodgings,  concludes  that  the  only  solution  to  the  prob- 
lem is  the  municipalization  of  the  soil. 

'  Boverat,    Le    Socialisme    Municipal    en    Angleterre    et    les 
Résultats  Financiers. 


160 


CHAPTER  XIV 

HOUSING  OF  THE  WORKING  CLASSES  ON  THE 
CONTINENT 

1.  Housing  People  of  One  Class  at  the  Expense  of  Those 

of  Another. — Private  Initiative. — The  Call  of  the 
City  and  Return  to  the  Soil. — Pretexts. — Foreign  Ex- 
amples. 

2.  Germany. 
3-  Italy. 

4.  Belgium. 

5.  Holland. 

6.  Switzerland. 

7.  Austria. 

8.  Hungary. 

9.  Sweden  and  Norway. 

10.  Conclusions  of  the  Report  of  the  Municipal  Council  of 

Paris. — Denying  Facts. — The  Strength  of  Private  Ini- 
tiative.— Weakness  of  Municipal  Efforts. 

11.  Conclusions. 

I.  There  are  men  who,  full  of  sympathy  for  their 
fellow  men,  wish  to  house  them,  feed  them,  and 
dress  them,  but  at  whose  expense?  The  trouble  is 
they  want  to  house  people  of  one  class  at  the  cost  of 
another. 

Of  late  years  the  activity  of  the  partisans  of  munici- 
palization and  socialism  has  been  turned  toward  the 
housing  of  the  working  classes,  as  if  the  term  "work- 
ing classes"  alone  were  not  sufficient  to  indicate  the 
retrogressive  character  of  such  measures.     They  are 

161 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

instrumental  in  creating  a  class  apart,  who  are  to  be 
protected  by  other  classes,  utterly  oblivious  of  that 
spirit  of  equality  inculcated  by  the  motto  of  the 
French  Republic. 

The  interventionalists  denounce  the  weakness  of 
private  initiative,  as  though  up  to  the  present  it  had 
not  been  responsible  for  the  development  of  the  cities 
which  these  same  individuals,  from  an  entirely  difïer- 
ent  standpoint,  so  bitterly  deplore.  It  never  seems  to 
occur  to  them  that,  by  deluding  the  people  of  the  rural 
districts  into  thinking  that  they  will  be  offered  desir- 
able and  more  or  less  gratuitous  homes,  they  are  in- 
fluencing them  to  leave  the  farms  for  the  city.  Their 
real  motives  are  concealed  within  such  vague  terms 
as  "public  health."  and  "the  housing  crisis." 

Nor  are  French  interventionalists  of  all  kinds  ever 
at  a  loss  for  foreign  examples.  In  their  report  to  the 
Municipal  Council  of  Paris  (1912),  upon  the  housing 
crisis,  and  the  creation  of  cheap  homes,  concluding 
with  the  recommendation  for  a  loan  of  200,000,000 
francs  by  the  city  of  Paris  for  the  purpose  of  con- 
structing cheap  lodgings,  MM.  Henri  Rousselle,  F. 
Brunet,  E.  Desvaux,  and  D'Herbécourt  review  the 
legislation  and  practice  of  foreign  countries.  We  con- 
gratulate them  upon  having  at  least  made  the  attempt 
to  support  their  thesis  upon  facts. 

2.  Germany: 

In  Germany  it  is  customary  for  municipalities  to 
ask  for  a  direct  loan  from  private  associations  and 
individuals  and  to  supplement  the  sums  so  raised  by 
municipal  loans. 

162 


HOUSING    OF    THE    WORKING    CLASSES 

Dusseldorf  borrows  up  to  60  per  cent,  of  the  value 
of  its  investment,  with  a  0.20  per  cent,  premium  in 
the  rate  of  issue. 

Frankfort  (414,400  inhabitants)  has  constructed 
and  rents  65  houses,  containing  366  apartments. 

Ulm  (57,500  inhabitants)  has  provided  separate 
houses,  of  which  the  family  lodged  therein  becomes 
proprietor.  During  the  years  since  1891  it  has  owned 
2,131  hectares  (5,263  acres)  of  land.  It  has  managed 
to  dispose  of  35.  The  city  of  Ulm  congratulates  it- 
self upon  the  results  it  has  achieved.  Everything 
depends  upon  your  point  of  view. 

In  1896  Strassburg  (173,280  inhabitants)  began  to 
construct  houses  and  to  manage  them  directly  ;  it  now 
owns  1 1  buildings,  containing  98  apartments,  occupied 
by  372  people. 

Berlin  (2,064,000  inhabitants)  has  done  nothing 
along  these  lines;  nor  has  Hamburg  (802,800  inhabi- 
tants) any  municipal  lodging  enterprises. 

Freiburg  im  Breisgau  (85,000  inhabitants)  owns  y  y 
houses,  containing  266  lodgings,  and  costing  1,225,000 
marks  ($294,000),  which  sum  was  advanced  at  3.75 
per  cent,  interest  by  the  savings  banks.  It  was  esti- 
mated that  the  rent  should  bring  in  5.25  per  cent, 
on  the  capital. 

Magdeburg  (279,600  inhabitants)  has  constructed 
7  buildings,  containing  50  apartments. 

Barmen  (170,000  inhabitants)  has  constructed  7 
buildings,  containing  50  apartments. 

Emden  (20,000  inhabitants)  has  constructed  228 
houses.  The  capital  invested  by  the  village  brings  in 
3.50  per  cent,  to  4  per  cent. 

163 


WHF.RK   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Dresden  (547,000  inhabitants)  has  constructed  "out 
of  resources  provided  by  the  Krcnkcl  Fund"  a  model 
group  of  5  houses,  each  containing  34  separate  rooms. 
"In  this  work  the  question  of  financial  return  has  been 
considered  as  wholly  secondary."  As  a  result,  the 
inhabitants  of  these  houses  are  a  privileged  class,  who 
enjoy  all  sorts  of  advantages  and  pay  25  per  cent,  less 
than  the  usual  rents.  With  the  help  of  the  Krenkel 
Fund  the  city  has  also  undertaken  the  construction  of 
two  other  buildings,  containing  36  apartments. 

Munich  (595,000  inhabitants)  has  devoted  1,040,- 
000  marks  ($249,600)  to  the  construction  of  15 
houses,  containing  167  apartments,  for  laborers  and 
other  employees  of  the  city. 

3.  Italy: 

Louis  Rousselle  quotes  these  words  of  Garibaldi, 
spoken  at  the  time  of  the  conquest  of  the  two  Sicilies: 

"A  government  sprung  from  the  people  is  before  all 
else  bound  to  provide  for  the  first  necessity  of  the  peo- 
ple— commodious  and  sanitary  homes  at  a  moderate 
cost." 

Certainly,  if  any  people  were  ever  badly  housed  it 
was  the  Neapolitans.  I  saw  some  of  their  hovels  a 
long  time  after  Garibaldi  had  pronounced  these  words. 
No  change  had  been  wrought  by  them  in  the  filth 
and  misery  of  the  majority  of  the  population.  How- 
ever, the  true  home  of  the  la£"crone  is  the  shore. 
The  children  swarm  in  the  sun,  and  the  sea  air  counter- 
acts the  pestilential  atmosphere  of  the  home. 

The  Italian  law  of  May  31,  1903 — modified  in  1907 

164 


HOUSING    OF    THE    WORKING    CLASSES 

— has  constituted  an  autonomous  institution,  "a  sort 
of  financial  organization  with  social  intentions,"  to 
quote  the  expression  of  Luigi  Luzzatti,  recently  Min- 
ister of  Foreign  Affairs. 

Public  construction  and  control  of  such  works  are 
in  force  only  in  Venice,  Parma,  Reggio,  Emelia,  Vin- 
cenza,  Sestri-Ponente,  and  Carrara. 

Venice  (167,000  inhabitants)  owns  396  houses, 
lodging  2,000  persons. 

Parma  (51,300  inhabitants)  has  82  houses  contain- 
ing 508  rooms,  and  sheltering  130  families,  or  724 
people. 

Sestri-Ponente  (23,100  inhabitants)  has  11  houses, 
each  containing  20  apartments. 

4.  Belgium  : 

Brussels  (195,600  inhabitants)  has  appropriated 
sums  for  housing  purposes  amounting  to  2,500,000 
francs  ($475,000).  But  our  report  declares  that  it  is 
necessary  to  subtract  half  as  devoted  to  sanitation. 
Thus,  1,250,000  francs  ($237,500)  remained  to  be 
applied  to  the  experiment.  On  this  basis  the  net  cost 
of  one  rented  room  is  3,575  francs  ($679).  It  is  all 
quite  simple. 

The  Commission  estimates  the  total  charges  at  from 
15  to  30  per  cent,  of  the  rent.  The  bonds  of  the 
city  of  Brussels  were  issued  at  about  2.70  per  cent, 
interest,  premiums  and  amortization  included.  The 
annual  rent  of  one  room,  taking  into  account  the 
higher  rent  of  small  shops,  will  be  about  98  francs 

51  ($18.72). 

Saint  Gilles-près-Bruxelles  (63,000  inhabitants)  be- 

165 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

gan  in  1894  with  5  small,  one-story  houses.  Later  this 
system  was  abandoned,  and  the  town  now  has  a  group 
of  tenement  houses,  comprising  130  lodgings. 

The  loans  contracted  by  the  municipality  are  issued 
at  3.25  per  cent.,  with  an  amortization  charge  of  44 
centimes  (9  cents),  or  49  centimes  (10  cents).  This 
appears  about  to  equal  the  average  income. 

5.  Holland: 

A  law  of  1853  permits  officials  entrusted  with  the 
duty  of  looking  out  for  house  sanitation  to  enter  any 
building,  even  in  the  night.  The  law  of  June  22, 
1911,  confers  upon  municipal  councils  the  right  of 
preventing  the  occupancy  of  unsanitary  buildings  and 
of  regulating  the  number  of  people  to  a  house.  But 
no  city  has  constructed  or  rents  houses. 

6.  Switzerland: 

Geneva  (145,000  inhabitants)  has  constructed 
buildings  containing  43  apartments  and   m   rooms. 

Lausanne  (65,000  inhabitants)  has  constructed  8 
houses,  containing  a  total  of  24  apartments. 

Zurich  (191,200  inhabitants)  began  by  building 
houses  for  its  municipal  employees.  In  1907  it  erected 
25  buildings,  containing  225  apartments;  in  1910  it 
constructed  228  apartments,  and  76  attic  rooms.  It  is 
now  planning  to  construct  370  new  houses. 

Bern  (85,000  inhabitants)  built  134  small  houses, 
containing  182  apartments  in  1895,  and,  in  1898,  25 
new  houses. 

Neuchatel  (23,600  inhabitants)  has  built  houses 
containing  47  apartments. 

166 


housing  of  the  working  classes 

7.  Austria  : 

In  191 1  a  plan  was  discussed  in  Vienna  (1,999,- 
900  inhabitants),  involving  an  outlay  of  480,000 
crowns  ($96,000),  for  the  construction  of  temporary 
homes  for  the  homeless. 

8.  Hungary: 

In  1908  the  Hungarian  government  proposed  to  the 
Chamber  of  Deputies  to  build  a  group  of  houses  in  the 
suburbs  of  the  city  of  Budapest  (791,700  inhabitants) 
capable  of  sheltering  from  8,000  to  10,000  families.  A 
credit  of  12,000,000  crowns  ($2,400,000)  was  opened 
to  the  ministry  of  Finance,  and  a  tract  of  land,  con- 
taining 169  hectares  (417  acres),  was  bought  at  Kis- 
pest,  while  in  the  tenth  district  a  second  tract,  contain- 
ing jy  hectares  (190  acres),  was  purchased.  On  May 
I,  191 1,  970  apartments  were  finished.  In  1912,  2,000 
other  lodgings  were  to  be  open  to  rent.  The  work  is 
to  be  finished  in  1914.  As  tenants  the  preference  is 
given  to  laborers  and  subordinate  employees  of  the 
government.  These  houses  are  exempt  from  state 
taxes. 

In  1909  the  burgomaster  of  Budapest  asked  for  an 
appropriation  of  69,000,000  crowns  ($13,800,000) 
for  the  construction  of  cheap  lodgings.  In  all  the  city 
has  constructed  26  buildings,  containing  1,600  apart- 
ments, and  costing  27,000,000  crowns  ($5,400,000). 
On  September  19th  of  the  current  year,  it  was  decided 
to  construct  1,000  more. 

A  special  feature  of  the  lodging  schemes  of  Buda- 
pest has  been  the  establishment  of  temporary  settle- 
ments, containing  3,000  apartments,  and  expected  to 

167 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

last  20  years,  at  a  cost  of  8,100,000  crowns  ($1,620,- 
000).  Still  another  special  feature  has  been  the  con- 
struction of  a  furnished  hotel,  containing  500  beds. 
The  city  is  planning  to  build  others. 

9.  Sweden: 

Stockholm  (344,000  inhabitants)  owns  12,000 
apartments.  According  to  the  memorandum  of  M. 
Gunichard,  one  of  the  municipal  directors  of  the 
city,  10,136  lodgings  are  to  be  considered  as  hous- 
ing 21,000  persons,  almost  7  per  cent,  of  the  en- 
tire population  of  the  city.  But  "these  apartments 
are  situated  in  old  houses,  about  to  be  demolished,  and 
the  city  is  trying  to  sell  the  land." 

The  government  has  also  built  houses  for  the  bene- 
fit of  government  laborers  and  employees,  especially 
for  those  connected  with  the  railroad  and  telegraph 
services.  In  the  city  of  Stockholm  443  apartments 
are  reckoned  to  1,700  people. 

Norway  : 

Christiania  (227,600  inhabitants)  has  built  and 
rents  two  buildings,  containing  152  rooms. 

10.  After  their  review  (summarized  above)  of  mu- 
nicipal housing  in  general,  M.  Rousselle  and  his  col- 
laborators on  the  Municipal  Council  say,  with  em- 
phasis : 

"The  conclusion  of  this  rapid  review  of  the  work  ac- 
complished abroad  in  the  matter  of  housing  the  working 
classes  is  that  in  all  the  great  cities  the  officials  in  power 
have   approached   the   problem   squarely   and    have   at- 

168 


HOUSING    OF    THE    WORKING    CLASSES 

tempted  to  solve  it  by   the  most  direct  and   energetic 
means." 

Wherefore,  there  is  bitter  indignation  against 
"France,  which,  alone  among  the  great  modern  na- 
tions, obstinately  refuses  to  municipalities  the  right 
of  direct  interference,  despite  the  failure  of  private 
initiative  and  in  the  light  of  universal  experience." 

It  is  curious  to  note  the  different  interpretations  to 
which  a  single  fact  is  susceptible.  These  municipal 
councillors  speak  of  the  failure  of  private  industry 
and  universal  experience.  But,  without  private  initia- 
tive, where  would  ninety-nine  one  hundredths  of  the 
population  of  London  be  living?  The  irrefutable 
facts  already  enumerated  show  that,  in  most  of  the 
cities  which  construct  and  rent  apartments,  the  privi- 
leged classes  who  occupy  them  form  but  an  infinitesi- 
mal portion  of  the  population.  If  individual  owners 
had  not  housed  for  a  long  time,  and  were  not  still 
housing,  less  favored  mortals,  the  great  cities  would 
not  exist  at  all.  And  still  another  fact  that  should 
be  observed  in  this  connection  is  that,  in  a  certain 
number  of  these  cases,  municipal  lodgings  actually 
constitute  supplemental  wages  for  employees  and  la- 
borers. 

From  no  possible  point  of  view  is  the  desire  to 
house  so  many  people  justified,  and,  moreover,  it 
threatens  both  political  and  social  dangers  in  the  fu- 
ture. For  example,  the  Hungarian  government  estab- 
lishes settlements  of  small  homes  near  Budapest. 
Then  the  municipality  of  Budapest,  in  order  to  meet 
this  competition,  builds  houses  in  its  turn.     I  gaze 

169 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

with  awe  on  those  states  and  cities  which,  while  con- 
fronted with  the  necessity  of  husbanding  their  re- 
sources, have  the  courage  to  launch  out  into  such 
extravagances. 

According  to  the  advocates  of  municipalization,  all 
great  cities  should  construct  and  manage  workmen's 
houses.  But  when  they  cite  facts  in  support  of  their 
contention,  their  facts  prove  precisely  the  opposite 
from  what  they  intended  them  to  prove.  The  majority 
of  the  great  cities  of  the  world  neither  construct  nor 
administer  houses  for  the  benefit  of  the  working 
people. 

Nor  have  such  cities  as  have  undertaken  this  kind 
of  work  displayed  the  courage  of  their  convictions, 
as  the  oft-quoted  example  of  the  London  County 
Council  proves.  In  cities  containing  hundreds  of 
thousands  of  inhabitants  lodgings  are  built  for  a  few 
hundred  people.  Yet  we  French  are  airily  urged: 
Imitate  them!  If  we  should  imitate  them  in  the  same 
degree  our  undertakings  would  certainly  not  amount 
to  much. 

However,  the  following  circumstance  proves  that 
the  efforts  of  the  promoters  of  municipal  lodgings 
are  bearing  some  fruit.  The  prefect  of  the  Seine  is 
demanding  the  creation  of  a  public  bureau  of  cheap 
lodgings,  to  which  the  city  of  Paris  shall  hand  over 
the  millions  set  aside  according  to  the  law  of  December 
12,  1912,  for  that  purpose.  The  plan  provides  that 
the  bureau  shall  attend  to  the  payment  of  interest,  and 
the  reimbursement — after  75  years — of  the  capital 
thus  invested  by  the  city. 

But  at  what  rate  of  interest  can  the  city  of  Paris 

170 


HOUSING    OF    THE    WORKING    CLASSES 

borrow  now  (June,  191 3)  ?  The  bonds  issued  at  3 
per  cent,  on  May  21,  1912,  and  rated  at  285  francs,  are 
now  250  francs;  moreover,  the  housing  bureau  must 
be  responsible  for  capital  and  all  general  expenses 
of  administration,  rental  and  up-keep  at  a  gross 
rate  of  2  per  cent.,  as  well  as  the  expenses  of 
control  by  the  city  of  Paris  at  a  gross  rate  of  0.15 
per  cent.  It  must  set  aside  0.50  per  cent,  for  a  reserve 
fund  to  cover  the  more  costly  repairs  and  unexpected 
expenses.  We  have  thus  a  rate  of  over  5.65  per  cent. 
Under  such  a  system  the  city  is  supplying  capital  to 
an  association  which  pays  interest,  builds,  maintains, 
and  rents,  it  is  true,  but  which,  at  the  same  time,  is 
neither  more  nor  less  than  a  monopoly,  suppressing  all 
competition,  since  it  frightens  private  capital  away 
from  just  such  investments. 

Conclusions. 

1.  The  laws  concerning  unsanitary  buildings  are  a 
new  violation  of  the  right  of  property. 

2.  The  establishment  of  sanitary  lists  is  designed 
to  keep  diseased  inmates  out  of  these  buildings.  But, 
in  order  to  circumvent  such  regulations,  proprietors 
will  contrive  to  make  all  prospective  tenants  pass  be- 
fore a  special  examining  health  board. 

3.  Sanitary  statistics  of  apartments  belonging  to 
municipalities  are  of  no  value,  because  the  towns  may 
choose  their  tenants. 

4.  We  see  the  London  County  Council  dispossess- 
ing 45,000  people  and  lodging  51,000.  These  latter 
are  seldom  or  never  the  same  people,  and,  therefore, 

171 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

between  the  destruction  and  construction  of  houses, 
the  unhappy  tenants  have  found  themselves  housed 
under  no  better  conditions  than  before. 

5.  Those  cities  which  buy  real  estate  increase  the 
price  of  that  which  remains;  consequently  they  are 
helping  to  achieve  such  an  end.  In  constructing 
houses  at  all  they  are  withdrawing  this  branch  of 
industry  beyond  the  reach  of  private  enterprise,  and, 
while  they  are  driving  individuals  out  of  business  by 
their  competition,  they  are  showing  themselves  inca- 
pable of  providing  for  the  needs  that  they  are  pre- 
tending to  care  for.  In  reality  they  are  working  in  the 
interest  of  higher  rents. 

6.  Then  such  cities  are  practically  subsidizing  asso- 
ciations more  or  less  financial  and  philanthropic. 
These  are  frequently  granted  special  privileges,  as  in 
France  under  the  law  of  1894,  reinforced  by  that  of 
1906.  Léon  Bourgeois  himself  described  the  .results 
of  such  laws  as  "sporadic."  The  departmental  Com- 
mittee on  Patronage  of  Cheap  Houses  declares  that: 
"The  number  of  philanthropic  associations  is  unimpor- 
tant, and  they  are  not  modifying  hygienic  conditions 
in  the  housing  of  the  workmen  of  Paris." 

7.  The  law  of  1906  has  had  at  least  one  result: 
While  philanthropic  associations  were  showing  their  in- 
efficiency individuals  and  contractors  have  hesitated  to 
invest  capital  in  the  construction  of  small  houses,  fear- 
ing to  see  their  property  decrease  in  value  by  reason 
of  the  competition  of  privileged  associations  or  of  the 
city. 

8.  Statistics  prove  the    conclusions    above    drawn. 

172 


HOUSING    OF    THE    WORKING    CLASSES 

The  excess   of  buildings   constructed   in   Paris   over 
buildings  demolished  has  been  : 

From  1901  to  1905,  43,475-^5=8,695  per  year 
1906  to  1910,  33,845-^5=6,769  " 

Or  a  difference  between  the  two  periods  of  at  least 
22  per  cent. 

The  following  table  applies  to  tenements  of  500 
francs  per  year  and  under.  These  buildings  are  not 
taxed. 

Number  of  Number  of 

Buildings  Buildings  Excess 

Constructed  Demolished 

From  1901-1905 37,159  12,243  24,916 

1906-1910 28,792  11,605  17,187 

Or  at  least  31  per  cent. 

As  a  matter  of  fact  the  housing  crisis  in  Paris  has 
been  provoked  by  legislative  and  municipal  inter- 
vention. 

9.  On  the  nth  day  of  July  (1912)  the  Chamber 
of  Deputies  passed  a  resolution  modifying  the  law  of 
1906  concerning  cheap  lodgings.  In  this  law  there  is 
no  mention  of  construction  and  direct  public  manage- 
ment by  municipalities.  Nevertheless,  the  Journal 
Officiel,  of  July  30,  191 2,  duly  proclaimed  the  law  as 
authorizing  the  city  of  Paris  to  borrow  200,000,000 
francs  ($38,000,000),  in  order  to  facilitate  "the  con- 
struction of  cheap  houses,  or  to  acquire  and  make  sani- 
tary buildings  already  existing."  The  law  as  modi- 
fied was  placed  on  the  statute  books  December  i,  19 12. 

In  part  compensation  for  this  enormous  outlay  the 
prefect  of  the  Seine  proposed   to  levy  taxes  to  the 

173 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

amount  of  11,000,000  francs  ($2,200,000)  upon  ten- 
ants, owners,  and  billboards.  He  has  been  compelled 
to  abandon  the  scheme,  but  meanwhile  necessary  work 
on  the  city  streets  has  been  at  a  standstill.^ 

^  Since  the  foregoing  statement  was  made,  the  project  has 
again  been  advanced  and  has  been  incorporated  in  the  budget 
of  1914. 


174 


CHAPTER  XV 

GOVERNMENT  CONTROL  OF  FOOD  SUPPLIES 

Public  Control  of  the  Sale  of  Fish,  Potatoes  and  Apples  in 
Swiss  Towns. — Eighteen  Communes. — Losses. — Nega- 
tive Results. — Competition  with  Private  Business. — 
Municipal  Slaughter  House  at  Denain,  France. — Ex- 
periment at  Montpellier. — Three  German  Slaughter 
Houses. — Four  Slaughter  Houses  at  Vienna. — The  Mu- 
nicipal Oven  at  Udine. — The  Verona  Fish  Market. 

To  a  questionnaire  sent  out  to  Swiss  towns  by 
Edgar  Milhaud  concerning  markets  operated  by 
them  ^  74  towns  responded  ;  33  returned  purely  nega- 
tive answers;  41  have  made  some  headway  against 
the  high  cost  of  Hving;  Glarus  has  leased  a  fish  mar- 
ket to  a  merchant  who  has  been  authorized  to  raise 
his  price  from  10  to  20  centimes  (2  cents  to  4  cents) 
a  pound  above  cost.  Oerlikon  had  given  to  certain 
families  the  right  to  reductions  of  from  10  to  20  per 
cent,  from  all  retail  dealers,  at  the  expense  of  the 
commune.  In  1908  Romanshorn  opened  a  public  fish 
market:  "No  gains  and  few  losses."  Saint-Imier, 
Herisau,  Rorschach,  Schafïhausen  have  renounced 
similar  attempts.     Thun  has  leased  a  fish  market. 

At  Saint  Gall  the  sale  of  fish  yields  several  hun- 
dreds of  francs  profit  to  the  city,  and  has  lowered 

*  Les  Annales  de  la  Régie  Directe,  Feb.-April,  1912. 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  price  of  fish  in  the  private  market.  The  market 
is  patronized,  however,  only  by  wealthy  families  or 
those  in  easy  circumstances. 

Zurich,  three  years  ago,  entrusted  the  sale  of  sea 
fish  to  a  cooperative  society,  the  Zurich  Lebensmittel- 
verein;  the  fish  were  sold  at  cost,  plus  a  percentage  to 
cover  expenses.  The  administrative  council  of  the 
society  declared  that  "the  attempts  made  to  accustom 
the  Swiss  population  to  the  use  of  fish  food  must  be 
regarded  as  having  failed."  Zurich  then  organized 
cooking  classes.  The  results  of  this  latter  experiment 
are  not  yet  known. 

Zug  has  established  a  municipal  slaughter  house. 
Freiburg  bought  and  sold,  in  the  autumn  of  1910  and 
the  spring  of  1911,  193,000  kilos  (474,600  lbs.)  of 
potatoes,  at  a  loss  of  2,833  francs  ($538).  Lucerne, 
in  191 1,  sold  13  carloads  of  potatoes,  4  carloads  of 
apples,  and  2  carloads  of  carrots,  for  cash.  The 
shipping  costs  were  met  by  the  town.  In  addition 
43,750  kilos  (96,250  lbs.)  of  coke  were  sold  by  the 
city.  The  undertaking  ultimately  resulted  in  a  loss  of 
2,842  francs.  In  any  event,  the  authorities  of  Lucerne 
can  hardly  be  accused  of  supplying  over-substantial 
nourishment  to  their  fellow-citizens! 

The  town  of  Saint  Gall  caused  vegetables  to  be 
sold  by  a  cooperative  society  at  cost  price  f.o.b.  Saint 
Gall  at  the  receiving  point  (the  railroad  station).  The 
city  paid  the  difference,  which  amounted  to  400  francs 
a  month.  The  sale  was  limited  to  "that  part  of  the 
public  without  income."  The  total  sales  amounted  to 
only  1,700  francs,  the  expenses  to  6,131   francs,  and 

176 


GOVERNMENT    CONTROr.    OF    FOOD    SUPPLIES 

the  attempt  lasted  only   from  the  first  of  November, 

191 1,  to  February  29,  1912. 

During  the   winter   months    1910-1911    and    191 1- 

19 1 2,  Bern  undertook  to  purchase  potatoes  at  whole- 
sale and  to  sell  them  at  retail.  In  the  latter  year, 
it  added  the  sale  of  white  cabbages.  As  a  matter  of 
course  the  experiment  resulted  in  losses. 

Lausanne,  during  several  days  in  19 10,  sold  po- 
tatoes with  a  profit  of  230  francs  15  centimes, 
and  distributed  a  balance  of  1,340  kilos  (2,948  lbs.) 
gratis. 

In  1911-1912  Zurich  sold  550  kilos  (1,210  lbs.) 
of  potatoes  at  a  loss  of  901  francs  25  centimes  which 
was  reduced  to  569  francs,  following  a  reduction  in 
the  freight  costs  of  332  francs  25  centimes  made  by 
the  Federal  railways.  "A  reduction  of  the  freight 
rates  has  been  granted  for  the  transportation  of  food 
supplies  from  October  i,  191 1,  to  May  31,  19 12,  if  the 
supplies  are  to  be  utilized  for  the  public  good." 

Anybody  who  ships  potatoes  ships  them  for  the 
public  benefit  since  they  are  destined  to  provide  food 
for  those  who  buy  them.  This  reduction,  therefore, 
simply  gave  a  subsidy  to  municipalities  as  against  in- 
dividual merchants.  The  figures  that  I  have  just  re- 
produced prove  that,  if  the  Swiss,  in  order  to  live, 
had  been  forced  to  rely  upon  the  municipality  for 
their  food  in  1910-1911.  they  would  all  be  dead  of 
starvation. 

As  a  matter  of  fact,  18  communes  have  made  at- 
tempts at  public  regulation  of  food  supplies,  in  order 
to  combat  the  high  cost  of  living.  These  are:  Brugg 
(3,000   inhabitants)  ;     Weinfelden     (4,000)  ;     Baden 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

(6,050);  Grenchen  (5,202);  Romanshorn  (6,000); 
Thun  (6,030)  ;  Herisau  (13,853)  ;  Le  Lode  (13,197)  ; 
Rorschach  (13,481);  Schaffhausen  (17,148);  Frei- 
burg (20,300);  La  Chaux-de-Fonds  (39,497);  Lu- 
cerne (38,467)  ;  Saint  Gall  (35,000);  Basle  (129,- 
600);  Bern  (78,500);  Lausanne  (59,327);  Zurich 
(180,000). 

Milhaud  concludes  his  article  with  this  enthusiastic 
statement  : 

"As  a  result  of  these  public  services  we  have  remarked 
the  following  cost  reductions:  Potatoes,  from  12  per 
cent,  to  24  per  cent.;  fuel,  15  per  cent,  to  50  per  cent.; 
fish,  30  per  cent,  to  50  per  cent." 

Or  in  other  words  free  competition  is  making  a  los- 
ing fight  against  public  operation,  and  Edgard  Milhaud 
considers  this  a  most  desirable  state  of  affairs. 

If  the  custom  of  providing  government  food  should 
ever  become  general,  it  would  be  necessary  for  an 
individual  to  have  great  courage  in  order  to  engage 
in  any  similar  undertaking  in  view  of  the  prospect  of 
being  undersold  by  the  municipality.  The  town  can 
lose  with  impunity;  the  taxpayers  will  make  up  the 
loss.  On  the  other  hand,  loss  to  a  merchant  means 
his  whole  financial  standing  in  the  community  and 
that  of  those  who  may  have  placed  confidence  in  him, 
all  of  whom  have  a  right  not  to  anticipate  such  dis- 
turbing factors  as  result  from  the  intervention  of 
municipalities  turned  merchants  of  potatoes,  apples, 
cabbages,  carrots,  and  fish. 

The  towns  concerned  would  answer  that  their 
action  was  only  one  form  of  philanthropy.    As  a  mat- 

178 


GOVERNMENT    CONTROL   OF    FOOD    SUPPLIES 

ter  of  fact,  several  of  them  did  limit  their  sales  to 
the  poor.  Others,  however,  did  not  take  this  precau- 
tion, and,  in  the  majority  of  cases,  they  did  not  seek 
any  justification  for  the  measures  they  took. 

I  do  not  believe  that  the  results  of  this  investigation 
would  encourage  very  many  towns  to  follow  the  ex- 
ample of  the  1 8  Swiss  communes.  They  are  such  that 
it  is  not  even  necessary  to  furnish  further  arguments 
for  an  amendment  to  the  law  of  1884  prohibiting 
municipalities  from  going  into  business. 

In  191 1  there  were  several  attempts  in  France  to 
regulate  the  food  supply.  The  mayor  of  Denain,  M. 
Selle,  opened  a  municipal  slaughter  house.  Cattle 
decked  with  ribbons  were  conducted  there  solemnly 
to  the  tune  of  the  "Internationale."  At  the  end  of  one 
week  the  undertaking  developed  the  following  fig- 
ures (in  francs)  : 

Expenses 

Purchase   of  animals 17)453-32 

Management  and   inspection  of  animals 1,011.36 

Total    18,464.68 

Receipts 

Sale  of  meat 15,700.25 

Sale  of   skins 1,365.51 

Miscellaneous    receipts    I7I-55 

Total    17,237-31 

Deficit  in  7  days 1,227.37 

The  mayor  called  a  halt.  The  indignant  populace, 
whom  he  had  promised  to  feed  below  cost,  broke  into 
his  house,   from  which  he  managed  to  escape  under 

179 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  protection  of  the  police.  Thereafter  neither  the 
mayoralty  nor  the  municipal  council  knew  him  more. 

At  Montpellier  an  attempt  at  a  municipal  slaughter 
house  was  made,  which  resulted  in  a  loss  of  6,000 
francs. 

Edgard  Milhaud,  who  sees  all  attempts  at  public 
ownership  through  rose-colored  glasses,^  has  declared 
that  at  Eberwald,  Thionville,  and  Freiburg-im-Breis- 
gau  the  attempts  at  municipalizing  a  slaughter  house 
were  successful.  According  to  the  director  of  the 
abattoir  of  Freiburg,  M.  Metz,  the  experiment,  which 
took  place  in  1895,  was  only  temporary,  and  a  burden 
while  it  lasted.  The  enormous  waste,  which  may  and 
does  occur  in  such  enterprises,  renders  management 
very  difficult. 

At  Thionville  experiments  were  made  with  pork  in 
order  to  force  the  butchers  to  lower  their  prices.  "The 
meager  profits  realized  were  divided  between  two  old 
butchers  who  had  been  entrusted  with  the  purchase, 
slaughter  and  sale  of  the  meat."  In  1905,  at  Vienna, 
four  municipal  abattoirs  were  established,  which  dis- 
appeared after  a  short  period.^ 

All  these  undertakings  are  direct  attacks  on  com- 
mercial freedom.  In  Italy  ^  such  attacks  are  made 
without  scruple.  Udine  opened  a  municipal  oven  in 
order  to  ruin  the  existing  bakeries.  Verona  sells  fish 
to  the  injury  of  other  fish  merchants. 

^Annales  de  la  Régie  Directe.  1908. 

'The  Revue  Blette:  La  Municipalisation  de  la  Boucherie,  by 
Henri  Martel,  director  of  the  Veterinary  Service  of  the  Prefec- 
ture of  Police. 

*  See  Book  4,  The  State,  a  Dishonest  Man. 

180 


CHAPTER  XVI 

VICTIMS   OF  GOVERNMENT   OWNERSHIP 

The  Mayor  of  Elbeuf,  M.  Mouchel,  and  Gas  Service. — The 
Mayor  of  Milwaukee. 

A  high  school  professor  of  Elbeuf,  M.  Mouchel, 
afterward  mayor  of  that  city  for  17  years,  and  finally 
deputy,  was  attacked  by  the  municipalization  mania. 
He  municipalized  water,  electricity,  gas,  the  col- 
lection and  disposal  of  garbage,  and  the  burial  of 
the  dead.  February  28,  191 1,  there  appeared  in  the 
Dépêche  de  Rouen  a  highly  eulogistic  article  extolling 
his  work.  On  October  15  of  the  same  year  the  mayor 
was  obliged  to  confess  that  his  attempts  at  municipali- 
zation were  causing  a  deficit  of  180,000  francs  ($34,- 
200)  in  a  budget  of  800,000  francs  ($152,000).  A 
sum  of  250,000  francs  ($47,500)  would  be  necessary 
to  cover  the  losses. 

After  confessing  his  delusions  and  deceptions  be- 
fore a  meeting  of  the  municipal  council  M.  Mouchel 
committed  suicide  in  the  cellar  of  the  town  hall. 

The  serenity  of  the  Socialist  journals  was  scarcely 
rippled  by  such  an  occurrence.  L'Humanité  remarked  : 
"It  will  be  found  that  the  municipal  operation  of  gas 
will  not  have  cost  a  sou  more  nor  less  than  private 
operation."  Even  if  that  statement  were  true  it  would 
have  been  bad  business. 

181 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

But  the  partisans  of  government  and  municipal 
ownership  are  incorrigible.  "What  if  there  are 
losses,"  they  say  ;  "the  citizens  have  been  gainers." 
Not  as  taxpayers,  that  is  certain. 

As  for  the  United  States  the  disorder  and  waste 
of  its  municipal  administrations  are  notorious,  and 
development  of  public  operation  has  certainly  not  les- 
sened them. 

In  Milwaukee,  a  city  inhabited  almost  exclusively 
by  Germans,  municipal  Socialism  has  been  a  very 
costly  proposition.  Before  the  city  had  experimented 
with  a  single  municipal  undertaking  the  annual  normal 
increase  of  the  budget  was  $250,000.  Beginning  with 
1909  it  has  increased  $1,000,000  in  two  years.  At  the 
April  elections,  19 12,  the  Socialist  ticket  was  defeated 
by  a  majority  of  13,000  and  Mayor  Seidel  prosecuted. 

A  new  Bureau  of  Efficiency  and  Economy,  costing 
$20,000  a  year,  has  been  organized,  but  it  has  thus  far 
failed  to  make  any  report.^ 

*  Journal  of  Commerce,  New  York,  December  22,   191 1. 


182 


CHAPTER  XVII 

CHARGES,  DEBTS  AND  CREDIT 

The  Profits  of  British  Financial  Enterprises  for  the  Period 
1893-1898. — 1898-1902. — Report  for  1907;  1902-1906. — 
An  Annual  Profit  of  6s  3cf  ($1.50)  per  100  Pounds. — 
Financial  Situation  on  March  31,  191 1,  of  2,500  Local 
Governments. — Substituting  Monopolies  for  Taxation. 
— Relation  Between  Local  Taxation  and  Appropria- 
tions, io.y  yd  ($2.54)  per  100  Pounds. — Increase  of 
Local  Taxes. — Increase  of  Loans. — Decline  of  Credit. — ■ 
Complaint  of  a  Citizen  of  Birmingham. — Profit  on  Un- 
dertakings and  the  Cost  of  Loans. — Conclusions  of 
Major  Darwin. — Credit  of  German  Local  Governments. 

Let  us  now  take  up  the  question  of  charges,  debts, 
and  credit,  in  relation  to  British  local  enterprises. 

The  first  parliamentary  report  on  municipal  under- 
takings, which  appears  under  the  title  of  Municipal 
Corporations'  Reproductive  Undertakings,  dates  from 
1899.  It  includes  accounts  of  265  towns  of  England 
and  Wales  for  a  period  of  five  years,  ending  March, 
1898.  The  financial  results  indicated  are  shown  in 
the  following  table  : 

Pounds  Sterling 

Capital    invested 88,152,000 

Annual  net  profit;    depreciation  deducted...         370,000 

The  second  document  dates  from  1903.  It  is  more 
comprehensive.     The  Municipal  Year  Book  of   1912 

183 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

reproduces  it  in  its  entirety.  It  gives  the  results  of 
the  undertakings  of  299  municipalities  out  of  317 — 
not  including  London — for  a  period  of  four  years, 
or  from  1898  to  1902. 

Pounds  Sterling 

Capital  invested    121,172,000 

Net  annual  profit;    depreciation  deducted.  ..  .  378,000 

An  apparent  profit  of  .312  per  cent,  is  thus  indi- 
cated. 

In  1907  the  Local  Government  Board  published  a 
supplementary  statement,  showing  the  results  obtained 
by  192  municipalities  out  of  324  in  England  and  Wales 
during  the  year  1904-1905. 

Pounds  Sterling 

Profits  in   aid  of  taxes 898,742 

Deficits   covered  by   taxes 242,472 

Municipal  Trading  Returns  (No.  171,  1909)  gives 
statistics  only  regarding  the  work  of  the  London 
County  Council,  the  City  Corporation,  the  London 
boroughs,  and  43  municipalities  in  England  and  Scot- 
land for  the  four  years  from  1902- 1906. 

Mr.  J.  H.  Schooling,  the  celebrated  statistician,  has 
demonstrated  that  all  the  municipal  enterprises  taken 
together  show,  for  the  period  1898-1902,  an  annual 
profit  of  6^  3^/  ($1.50)  per  100  pounds  sterling  of 
capital  invested.  He  adds,  however,  that,  if  the  de- 
preciation of  roadbeds,  equipment,  etc.,  of  the  various 
undertakings  was  taken  care  of  as  it  would  be  in  pri- 
vate business  normally  managed,  the  annual  loss  would 
be  5,500,000  pounds  sterling  ($26,785,000),  or,  in 
other  words,  £4  los  yd  ($22)  on  every  100  pounds. 

184" 


CHARGES,    DEBTS    AND    CREDIT 

Among  the  sources  of  profits  are  reckoned  the  sums 
collected  from  private  businesses.  These  sums  are 
very  large  in  the  case  of  some  municipalities,  but  they 
cannot  legitimately  be  called  profits  from  municipal 
enterprises.^ 

The  Local  Government  Board  has  published  a  state- 
ment of  the  receipts,  expenses,  and  local  loans  in 
England  and  Wales  for  the  year  1910-1911.  The 
number  of  local  authorities  included  in  this  work  is 
2,500,  representing  about  one-tenth  of  the  local  gov- 
ernments mentioned  in  the  local  taxation  returns  for 
the  same  districts.  The  financial  situation,  on  March 
31,  191 1,  of  these  2,500  local  governments  was: 

Pounds  Sterling 

Receipts  from  all  sources  except  loans....  122,953,000 

Expenses,  except  capital  expenses 122,082,000 

Receipts    from     loans 16,137,000 

Capital    expenses    15,300,000 

Total   debt  at  the  end   of  the  year 410,695,000 

Sum  to  the  credit   of  sinking  funds   and 

the    like    21,198,500 

The  debt  of  these  2,500  local  governments  reached, 
then,  the  enormous  figure  of  £410,695,000  ($2,000,- 
094,000).  The  expenses  are  more  than  £137,382,000 
($668,850,000).  Of  the  £122,953,000  ($598,780,000) 
of  receipts,  local  taxation  accounts  for  £64,004,000 
($311,699,500)  and  grants  from  the  exchequer  (in- 
cluding the  local  share  of  license  fees)  for  £21,073,000 

^Fortnightly  Review,  August,  1906:  Lord  Avebury,  On  Mu- 
nicipal and  National  Trading,  page  68. 

185 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

($102,625,510),  giving  a  total  of  £85,077,000  ($414,- 
325,000). 

The  apologists  for  municipal  enterprises  give  the 
impression  that  such  undertakings  may  be  substituted 
for  taxes,  with  no  apparent  perception  of  the  fact 
that,  if  municipal  enterprises  were  to  replace  taxation, 
by  reason  of  their  innately  fiscal  character  they  would 
come  to  weigh  heavily  on  the  consumers.  The  concep- 
tion of  substituting  municipal  enterprises  for  a  treas- 
ury is,  therefore,  only  a  delusion. 

Local  government  undertakings  have,  in  some  in- 
stances, yielded  profits  which  have  relieved  local  taxa- 
tion. But  in  others  they  have  created  deficits  which 
are  met  only  with  the  help  of  taxes. 

In  1910-1911  the  total  amount  contributed  in  aid  of 
taxes  on  gas,  electricity,  ports,  docks,  jetties,  canals, 
quays,  tramways,  light  railways,  and  waterworks  un- 
dertakings was  £1,320,000  ($6,428,400),  of  which 
£1,203,000  ($5,858,600)  came  from  town  councils. 

The  total  amount  of  tax  funds  paid  out  to  provide 
for  deficits  on  the  same  undertakings  was  £971,000 
($4,728,800),  of  which  £631,000  ($3,073,000)  was 
provided  by  town  councils. 

Pounds  Sterling 

Surplus    i,320,ocxj 

Deficit    971,000 


349,000 


Thus,  the  reduction  of  local  taxation  effected  by 
profits  from  local  enterprises  amounted  to  £349,000 
($1,700,000),  or,  as  against  the  £64,000,000  ($311,- 
680,000)  of  local  taxes  and  the  £23,000,000  ($112,- 

186 


CHARGES^    DEBTS    AND    CREDIT 

000,000)  furnished  by  the  exchequer  to  0.41  per  cent., 
or  less  than  one-half  of  i  per  cent.  These  figures  are 
a  sufficient  answer  to  those  partisans  of  government 
ownership  who  are  continually  reiterating  that  ex- 
pense may  be  incurred  with  impunity  because  gov- 
ernment monopolies  will  pay  for  them.  And,  more- 
over, receipts  from  ports,  jetties,  quays,  and  canals, 
which  are  not  industrial  operations  properly  so- 
called,  are  included  in  these  figures. 

Moreover  to  the  loans  previously  noted  as  granted 
to  local  governments,  £23,210,000  ($113,033,000) 
should  be  added  for  the  Port  of  London;  £25,720,000 
($125,256,400)  for  the  Mersey  Docks  and  Harbor 
Board;  £49,529,000  ($241,236,000)  for  the  Metro- 
politan Water  Board;  more  than  £14,692,000  ($71,- 
550,000)  for  ports,  docks,  quays,  etc.,  or  a  total  of 
£129,288,000  ($625,795,000).  The  taxable  value  of 
all  this  property  was  £217,180,000  ($1,057,667,000), 
from  which  must  be  deducted,  however,  £1,737,000 
($8,459,000)  representing  government  property, 
which,  in  lieu  of  taxes,  pays  an  equivalent  sum  under 
the  name  of  "contributions." 

The  following  figures  show  the  total  local  tax  dur- 
ing the  three  years  1908-1911  : 

Year  AsSssabTvle  P- Inhabitant 

S         d  £  s  d 

1910-1911   64  I  15  9 

1909-1910  6       2]4  I  13  I 

1908-1909  6        1%  I  14  6 

The  pound  sterling  is  20  shillings.  The  tax  of 
1910-1911  represents  then  more  than  30  per  cent,  of 
the  assessed  value  of  the  taxable  property  just  listed. 

187 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

Municipal  enterprises,  far  from  having  relieved  the 
taxpayers,  have  not  prevented  local  taxes  from  soar- 
ing higher  in  1910-1911  than  they  had  ever  done  be- 
fore. 


Municipal    enterprises    make  loans    necessary,    and 
the  increase  of  loans  involves  loss  of  credit. 

Since  Dec.  1902  Quotation  for  July  jo. 

The  Highest  191 2 

Quotations  Lowest  Highest 

Metropolitan  Cons,  stock  31/2%     109  99^  100^2 

Metropolitan  Cons,  stock  3%. .     102  87                 88 

Metropolitan  Cons,  stock  2^%      91 14  681^              69^ 

Belfast   3%    (1953-8) 94/2  75 

Birmingham  2^% 88^^  75                   77 

Brighton  3%    (1933-53) 92  81                   83 

Glasgow   3'/^%    ii6i^  99H 

Glasgow    gas    annuities    295^^  236^/2 

Huddersfield  3^%  (1934)   106^  95                  96 

Hull    3^%    iio^  94                 96 

Leeds    163  134  136 

Leicester    3Î^%    108  93                  95 

Liverpool   31^%    i2i}4  98^              99/^ 

Manchester  4%    132  in  113 

Newcastle-on-Tyne  3J^%    ....     107^  94                 96 

Plymouth  3%    97  84                 86 

Nottingham  3%    100  36                 88 

Portsmouth   31/^%    105I/2  96                 98 

Reading   3^/^%    112^  94                 96 

Sheffield   2^%    82  69                 71 

Southampton    3^%    ioij4  92                 94 

Swansea  3^%    iiiH  93                  95 


The  Birmingham  Daily  Mail,  of  May  24,  191 1,  pub- 
lished the  letter  of  a  correspondent,  who  says: 

"The  town  made  last  year  a  profit  of  £132,174  ($643,- 
687),  from  which  must  be  deducted  a  loss  of  £57,091 

188 


CHARGES,    DEBTS    AND    CREDIT 

($278,033).  The  citizens  of  Birmingham  liave  loaned  to 
the  city  £12,500,000  ($60,875,000),  on  which  they  lose 
all  their  taxes  and  receive  in  turn  about  £60,000  ($292,- 
200),  or  less  than  0.45  per  cent.,  whereas  if  they  (the 
municipal  undertakings)  were  paying  5  per  cent,  they 
would  yield  £650,000  ($3,165,500)." 

Hilaire  Belloc.  during  a  debate  at  Memorial  Hall, 
in  London,  with  Ramsay  McDonald,  the  president  of 
the  Labor  Party  in  Parliament,  said  : 

"Municipal  enterprises  have  been  established  by  means 
of  loans  contracted  with  capitalists  to  whom  the  various 
local  governments  offered  returns  which  these  undertak- 
ings either  did  or  did  not  furnish.  The  result  has  been 
that  municipal  undertakings  have  been  bringing  in  about 
1.8  per  cent.,  while  3.2  per  cent,  interest  was  being  paid 
out.  The  debt  has  been  increasing.  There  has  been 
more  and  more  need  of  capitalists  who  have  refused  to 
consent  to  new  loans  seeing  that  the  debts  were  growing 
in  an  alarming  manner."    (Labor  Leader,  May  12,  191 1.) 

Major  Darwin,  in  his  objective  study  of  municipal 
industries,  reaches  the  following  conclusion  : 

"Municipalities  can  manage  markets,  public  baths, 
slaughter  houses,  cemeteries,  and  waterworks.  Munici- 
palities may  own  tramways.  But  all  these  enterprises 
ought  to  be  operated  privately.  Gas,  electricity,  tram- 
ways, the  telephone,  ought  to  remain  in  the  hands  of 
private  individuals." 

He  further  suggests  that  municipalities  be  forbidden 
to  manufacture  electrical  apparatus;  to  own  houses;  to 

189 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

engage  in  construction  without  contractors.  Munici- 
palities should  be  forbidden  to  attempt  to  make  money, 
and  their  borrowing  power  ought  to  be  restricted.^ 

In  the  United  States  the  debt  limit  for  municipal- 
ities is:  ID  per  cent,  of  the  taxable  value  in  New 
York,  5  per  cent,  in  many  of  the  western  states,  and 
2  per  cent,  in  others. 

This  year  (191 3)  the  German  cities  are  being  much 
hampered  for  lack  of  credit.  A  loan  sought  by  the 
city  of  Carlsruhe  has  had  to  be  indefinitely  postponed 
The  smaller  and  medium  sized  municipalities,  in  the 
absence  of  funds,  have  been  obliged  to  postpone  neces- 
sary work. 

^  Constitutional  Amendments  to  be  added  to  the  Declaration 
of  Rights. 


190 


CHAPTER  XVIII 

FICTITIOUS   PROFITS 

Railway  Charges. — Local  Taxes  on  Prussian  and  English 
Railways. — The  Victorian  State  Coal  Mine  and  the 
Government  Railways. — New  Zealand. — Profits  of  the 
National    Printing   Office. — The    Insurance   Monopoly. 

Private  enterprises  are  subject  to  certain  charges 
from  which  state  undertakings  are  exempt.  These 
exemptions  create  an  illusion  of  profit.  Local  taxes 
paid  by  the  government  railroads  in  Prussia  amount 
to  £750,000  ($3,652,500),  while  similar  taxes,  paid 
by  the  railways  of  the  United  Kingdom,  having  nearly 
the  same  length  of  line,  reach  £5,000,000  ($24,350,- 
000).  If  both  were  taxed  at  the  same  rate  the  profit 
on  the  government  railroads  in  Prussia  would  be  pro- 
portionally reduced.^ 

Further,  the  profits  of  one  state  undertaking  are 
frequently  obtained  only  at  the  expense  of  another. 
For  example,  the  Victorian  state  coal  mine,  in  Aus- 
tralia, is  called  a  success;  but  the  director  of  railroads, 
Mr.  Fitzpatrick,  complains  of  losing  45,000,000  francs 
($8,550,000)  through  being  forced  to  use  government 
coal.^ 

At  the  end  of  1912  it  was  announced  that  the  New 

*  Edwin  A.  Pratt,  Railways  and  Nationalization,  page  3. 
'  For  New  Zealand  see  Book  2,  Chapter  VII. 

191 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

South  Wales  government  was  prepared  to  nationalize 
the  iron  industry,  but  with  the  proviso  that  the  Federal 
government  must  stand  ready  to  order  the  material  for 
the  new  railroads  from  its  mills.  "Peter  is  being 
robbed  to  pay  Paul.  But  such  are  the  methods  of  pre- 
senting the  accounts  that  the  public  does  not  perceive 
this  fact,"  says  Liberty  and  Progress,  Melbourne,  May 
25,  1911. 

The  National  Printing  Office  of  France  undertakes 
to  do  outside  work  for  editors  ;  at  the  same  time  it  has 
a  monopoly  of  the  government  printing.  It  farms  out 
its  work  to  private  printers,  and  it  adds  a  charge  of  its 
own  to  the  original  cost  when  the  work  is  delivered  to 
the  departments,  which  have  no  choice  but  to  have 
their  printing  done  by  government  printers.  In  this 
connection  the  inspector  of  the  finances,  M.  Bizot,  has 
pointed  out  the  following  facts  : 

"The  National  Printing  Office  furnishes  the  forms  for 
telegrams.  It  has  contracted  with  a  private  company  to 
manufacture  and  deliver  these  forms  to  the  aforesaid 
printing  office,  cut,  folded,  perforated,  gummed,  and 
turned  at  a  cost  of  67  centimes  per  1,000  forms  in  pads 
of  100,  and  50  centimes  per  1,000  forms  when  delivered 
as  loose  sheets.  Up  to  191 1  the  National  Printing  Office 
invoiced  these  supplies  to  the  postoffice  at  a  cost  of  2  fr. 
and  I  fr.  62,  respectively,  instead  of  67  and  50  centimes. 
In  1910  this  addition  of  more  than  200  per  cent,  repre- 
sented a  profit  to  the  National  Printing  Office  of  82,000 
francs." 

And  who  was  paying  this  profit  to  the  National 
Printing  Office?    Why,  the  Postoffice  department,  or, 

192 


FICTITIOUS    PROFITS 

in  other  words,  the  government,  by  submitting  to  an 
overcharge  of  82,000  francs. 

The  law  of  April  4,  191 2.  has  ordered  that  the  in- 
surance monopoly  in  Italy  shall  be  exempt  from  postal 
charges,  and  that  its  profits  shall  not  be  subject  to 
the  income  tax. 

These  exemptions  will  be  accounted  on  the  credit 
side  of  the  insurance  monopoly.  They  ought  to  be 
deducted  from  the  government  resources. 


193 


CHAPTER  XIX 
FISCAL   MONOPOLIES 

1.  Tobacco  Monopoly  in  France. — Treasury  Profits. — Losses 

to  Agriculture,  Industry  and  Commerce. — Use  of  Na- 
tional vs.  Maryland  Tobacco. — Opposition  of  the  Con- 
sumer.— The  Advantage. — Delusions  Regarding  Regula- 
tion. 

2.  The   Match    Monopoly    in    France. — No    Amortization. — 

Bookkeeping  Artifices. 

3.  Fiscal  Profits. 

I.  It  is  customary  to  speak  of  the  results  of  the 
tobacco  monopoly  in  France,  in  force  since  181 1,  as 
marvelous. 

The  income  appears  truly  enormous.  In  181 5  it 
was  32,123,000  francs;  in  1830,  46,782,000  francs;  in 
1850,  88,915,000  francs;  in  1869,  197,210,000  francs; 
in  1890,  305,918,000  francs;  in  1900,  338,872,000 
francs;  in  1910,  407,330,000  francs. 

Without  doubt  this  is  a  dazzling  result  from  the 
fiscal  point  of  view,  and  it  also  proves  that  the  num- 
ber of  Frenchmen  who  use  tobacco  has  increased  more 
rapidly  than  the  population. 

But  there  are  other  ways  for  a  government  to  make 
money  out  of  tobacco  than  by  monopolizing  the  sale 
of  it.  In  1 908- 1 909  the  United  Kingdom  realized 
£13,328,000  upon  tobacco,  that  is  to  say,  333,450,000 
francs,  or  only  74,000,000  francs  ($14,060,000)  less 
than  our  monopoly  has  yielded  us. 

194 


FISCAL    MONOPOLIES 

We  see  what  this  monopoly  has  contributed  to  the 
Treasury  ;  but  we  do  not  see  the  losses  occasioned  by  it 
to  French  agriculture  and  industry.  It  is  a  privilege 
to  be  allowed  to  cultivate  tobacco.  I  have  heard  a 
deputy  say  :  "I  will  guarantee  that  not  a  single  one 
of  my  political  adversaries  will  cultivate  one  acre  of 
tobacco."  Possibly  he  was  boasting;  but  that  a  deputy 
could  use  such  language  is  sufficient  to  prove  just  how 
far  official  authority  is  capable  of  being  abused. 

In  any  case  there  are  only  27  districts  permitted  to 
cultivate  tobacco,  and  these  districts  are  situated  in 
all  parts  of  France,  from  the  North  to  Landes,  from 
Ile-et-Vilaine  to  the  Var.  Therefore,  climatic  rea- 
sons have  not  determined  these  concessions,  which, 
as  a  matter  of  fact,  are  wholly  dependent  upon  politics. 
The  number  of  hectares  authorized  was  17,955  (44^880 
acres)  in  1909,  and  18,005  hectares  (45,000  acres)  in 
19 10.  In  the  first  year  mentioned  15,037  hectares 
(37,593  acres)  out  of  a  possible  17,955  hectares 
(44,880  acres),  and  in  the  second  year,  14,683  hec- 
tares (36,708  acres)  out  of  a  possible  18,005  hectares 
(45,000  acres)  were  cultivated.  The  number  of  li- 
censes was,  respectively,  48,395  and  47,283. 

The  quantity  of  tobacco  bought  was  23,134,000  kg. 
(50,894,800  lbs.)  in  1909,  averaging  23,122,000 
francs,  and,  in  1910,  21,034,000  kg.  (46,274,800  lbs.), 
averaging  22,085,000  francs. 

Fr.  C. 

Value  of  domestic  tobacco  estimated  at.  .23,226,874        33 

Foreign  tobacco  at 31,825.437        95 

Algerian    tobacco   at 2,038,054        85 

Confiscated    tobacco    taken    from    dealers      144,772         15 

57,235.139        28 
195 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

But  let  US  look  at  the  monopoly  from  a  somewhat 
different  standpoint.  To-day  we  may  buy  scaferlati. 
Scaferlati  is  a  raw  product.  Consequently  you  may 
imagine  that  you  have  the  right  to  use  it  to  manufac- 
ture cigarettes.  In  fact  the  Court  of  Cassation  ^  has 
made  a  ruling  to  that  effect.  Nothing  of  the  kind. 
The  department  of  Indirect  Taxes  (Administration 
des  Contributions  Indirectes)  intervenes,  and  says  to 
you:  "You,  a  simple  individual,  cannot  manufacture 
cigarettes,  because  I  have  reserved  for  myself  a  mo- 
nopoly of  this  article." 

The  rival  claims  of  the  various  parties  interested  in 
the  sale  of  tobacco  became  the  subject  of  a  lively  dis- 
cussion between  the  tobacco  monopoly  and  the  Court 
of  Cassation.  The  Finance  Law  of  1895  finally  put 
an  end  to  the  altercation  by  justifying  the  exorbitant 
pretensions  of  the  monopoly.  It  decided  that,  al- 
though you  can  make  cigarettes  for  your  own  personal 
use  with  the  tobacco  that  you  buy  from  the  govern- 
ment, you  have  not  the  right  to  sell  these  cigarettes  to 
your  neighbor. 

On  September  17  and  18,  1903,  there  was  another 
altogether  edifying  discussion — this  time  in  the  Senate 
— upon  the  manner  in  which  the  state  treats  the  con- 
sumer. Certain  senators  were  anxious  to  prevent  the 
French  smoker  from  smoking  anything  but  the  na- 
tional tobacco.  The  Minister  of  Finance,  M.  Rouvier, 
opposed  this  restriction,  but  at  the  same  time  he  pro- 
ceeded to  demonstrate  how  cavalierly  the  state  may 
treat  the  consumer  who  has  no  other  source  of  appeal  : 

In     1900,     he    declared,    ordinary    scaferlati    had 
*  The  highest  judicial  court  of  France. 

196 


FISCAL    MONOPOLIES 

been  composed  of  52  per  cent,  native  tobacco 
and  48  per  cent,  foreign  tobacco.  In  1901  the 
proportion  was  changed  to  54  per  cent,  native  to- 
bacco and  46  per  cent,  foreign  tobacco.  The  con- 
sumption decreased  40,000  kg.  (88,000  lbs.). 

What  would  a  private  company  have  done  under 
similar  circumstances?  It  would  have  restored  the 
former  proportion,  as  a  matter  of  course. 

What  did  the  government  do?  It  increased  the 
proportion  of  native  tobacco. 

In  1902  scaferlati  was  composed  of  63  per  cent, 
native  tobacco  and  37  per  cent,  foreign  tobacco. 

"The  number  of  complaints  increased,"  added  the 
minister  placidly. 

But  what  did  the  minister  do  about  it?  Was  any 
attempt  made  to  satisfy  the  consumer?  Did  the  de- 
partment restore  the  previous  proportions?  Not  at 
all.  The  consumer  was  induced  to  see  the  error  of  his 
complaints  in  another  way.  Smokers  had  gradually 
abandoned  the  degenerate  scaferlati  for  Maryland  to- 
bacco. Therefore,  the  government  conceived  the 
happy  idea  of  increasing  the  price  of  Maryland  to- 
bacco. That  would  teach  the  smoker  to  be  content 
with  the  government  tobacco.  Strange  that  MM. 
Gomot  and  Ournac  should  discover  that  this  propor- 
tion of  native  tobacco  was  still  unsatisfactory  ! 

The  example  quoted  above  only  serves  to  prove 
once  more  the  truth  of  the  following  general 
law  : 

Under  conditions  of  free  competition  the  producer 
has  more  need  of  the  consumer  than  the  consumer 
of  the  producer,  and  it  is  necessary  that  the  latter  give 

197 


WHERE   AND   WHY    PUBLIC   OWNERSTIIP    HAS    FAILED 

the  former  the  maximian  of  service  at  a  minimum 
cost.  Under  monopolistic  conditions  the  consumer 
is  obliged  to  submit  to  the  exigencies  of  the  pro- 
ducer. 

If  the  consumer  wishes  to  retaliate  he  has  no  other 
recourse  than  that  species  of  strike  called  abstention, 
which  for  him  spells  privation.  As  the  case  of  the 
Maryland  tobacco  proves,  the  smoker  cannot  even 
resort  to  substituting  one  product  for  another.  If  he 
makes  the  attempt  he  is  penalized. 

Beginning  with  May  14,  1910,  M.  Cochery  raised 
the  rates  on  high-grade  tobacco  and  certain  tobaccos 
especially  popular  at  the  time.  As  a  result  of  this 
measure  an  increase  in  the  annual  receipts  of  18,000,- 
000  francs  was  anticipated,  and  for  19 10,  13,500,000 
francs.  The  increase  was  but  10,044,000  francs,  or 
only  998,000  francs  more  than  the  average  increase 
for  the  previous  four  years.  The  detailed  report  of 
the  sales  shows  that  the  public  had  abandoned  the  use 
of  the  high-grade  tobaccos,  and  was  contenting  itself 
with  scaferlati,  the  price  of  which  remained  the  same. 
Probably  it  was  not  without  discreet  murmurs  that 
the  public  resigned  itself  to  this  change  of  habit;  but 
at  least  the  passive  and  silent  strife  had  some  efiFect. 
The  decree  of  June  26,  191 1,  reestablished  the  former 
rates  on  brands  the  abandonment  of  which  would  make 
serious  inroads  upon  the  profits  of  the  monopoly — 
that  is  to  say,  the  more  expensive  scaferlati  and  the 
more  popular  cigarettes  made  from  it. 

But  now  let  us  suppose  that  this  monopoly  on  to- 
bacco in  France  did  not  exist.     We  French  are  ex- 

198 


FISCAL    MONOPOLIES 

tremely  skilful  in  raising  products  of  a  refined  savor, 
and  we  know  how  to  prepare  them  in  the  most  attrac- 
tive manner.  Let  us  imagine,  then,  that  the  cultivation 
and  sale  of  tobacco  were  free.  There  would  be  tens 
of  thousands  of  hectares  under  cultivation  in  those 
districts  where  the  soil  is  best  adapted  for  it.  We 
would  see  manufacturers  experimenting  with  skilful 
blends  of  native  and  foreign  tobaccos  suitable  for 
exportation.  We  would  see  in  the  great  cities  large 
and  imposing  shops  for  the  sale  of  tobacco  like  those 
seen  abroad. 

The  department  boasts  of  the  excellence  of  its  prod- 
ucts. The  foreigner  does  not  share  this  opinion,  be- 
cause exportation  is  almost  nil — 3,547,000  francs 
($673,930)  in  1910.  Yet  attempts  are  made  to  ex- 
port the  home  product,  because  included  in  the  above 
figure  is  the  sum  of  83,718  francs  ($15,906)  for 
commissions  paid  to  special  export  agents. 

If  the  monopoly  contributes  405,000,000  francs 
($76,950,000)  to  the  government  on  the  one  hand, 
it  is  certainly  causing  a  loss  of  many  hundreds  of  mil- 
lions annually  to  French  agriculture,  industry  and 
commerce  on  the  other  hand. 

Moreover,  but  little  regard  is  paid  to  the  net  cost 
of  manufacture  and  sale.  As  a  monopoly  the  state 
has,  of  course,  a  wide  margin. 

The  books  of  the  monopoly  carry  a  kind  of  indus- 
trial account,  entitled  Capital  de  la  Régie.  On  De- 
cember 31,  1910.  the  amount  was  figured  at  153,841,- 
482  francs  07  ($29,229,881).  Nothing  more  definite 
was  given.    The  sum  was  distributed  thus  : 

199 


WHERE  AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Fr.  C 

Tobaccos    99,599,224        07 

Buildings     42,146,962 

Machines     6,219,730 

Utensils,  supplies,  furnishings 5.875,566 

Total 153,841,482        07 

This  table  is  supplemented  by  the   following: 

Relation  of  the  Department  to  the  Treasury. 

On  December  31,  1910,  the  department  owed  the  Treasury: 

Fr.  C 

Capital  estimated  at 153,841,482        07 

Balance  to  be  collected  on  sales 96,984        44 

Total    153,938,466        51 

But  the  department  had  still  to  pay  on 

account  of  expenditures    6,504,885        75 

Finally  it  was  indebted  to  the  Treasury 

in  the  amount  of  i47,433i58o        76 

But  what  can  the  Treasury  do  with  42,000,000 
francs  in  buildings  and  6,000,000  francs  in  machinery, 
etc.  ?  Surely  there  is  no  indication  here  of  an  indus- 
trial budget. 

The  tobacco  monopoly  bought  nearly  32,000,000 
francs  ($6,080,000)  of  tobacco  abroad  in  1910.  To- 
bacco experts  visit  the  places  of  production,  meet  at 
Bremen,  and  buy  tobacco.  They  are  prepared  for 
the  business  by  the  Polytechnic  Institute.  It  is  the 
easier  for  me  to  say  what  I  am  about  to  say  since  the 
probity  of  these  agents  has  never  been  brought  into 
question.  But  what  control  can  be  exercised  by  any 
legislative  body  over  the  millions  of  francs'  worth  of 
tobacco  which  thus  passes  from  one  hand  to  another? 

200 


FISCAL    MONOPOLIES 

What   possible   chance   is  there   of   fixing   individual 
responsibility? 

In  fact  it  cannot  be  too  strongly  asserted  that 
legislators  have  yet  to  discover  how  to  interfere  effec- 
tively in  trading  operations  carried  on  by  the  state. 

2.  The  accounts  devoted  to  the  materials  and  money 
sunk  in  the  operation  of  the  chemical  match  monopoly 
for  1910  give  us  at  least  a  certain  amount  of  infor- 
mation. For  example,  the  amount  of  capital  controlled 
by  the  department  on  December  31,  1910,  is  figured  at 
10,633,635  francs  92,  and  is  distributed  as  follows: 

Fr.  C. 

10,697,036,288  finished   matches 2,347,805        40 

18,883,104,633  unfinished  matches 672,631      53 

Other  materials  and  products 234,266        99 

Land  and  buildings 4,150,301 

Machines,  apparatus  and  other  equip- 
ment     2,531,184 

Miscellaneous  supplies   727,447 

Total    10,663,635        92 

Compared  with  the  corresponding  fig- 
ures for  Dec.  31,  1909,  the  above  fig- 
ures represent  an  increase  in  capital 
of    525.111       OS 

Distributed  thus: 

Finished  matches   3S3.7o8        07 

Unfinished  matches   20,945        64 

Machines,  apparatus,  etc 301,487 

Supplies  and  miscellaneous  materials         112,458        34 

788,599        05 
Reductions 

Buildings  and  lands   263,488 

Net  increase 525,111        05 

201 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Profits 
The  receipts  for  one  year  amount  to.  .     42,435,220        26 
The  expenses  appearing  in  the  budget 
amount  to 12,333,827        50 


The  difference  between  the  receipts  and 

the  expenditures  is 30,101,392        76 

If  we  add  to  this  difference  the  increase 

upon   the  capital   of  the  department, 

which  has  been  figured  above  at....  525,111        05 


We  have  the  profit  for  the  year  1910, 

which   is    30,626,503        81 

The  profit  for  the  year  1909  having  been    29,832,443        95 


We  have  an  increase  of 794,059        86 

Relation  of  the  Department  to  the  Treasury. 
On  December  31,  1910,  the  department  owed  the  Treasury; 

Fr.  C. 

Capital  estimated  at 10,633,635        92 

Balance    to    be    collected    on    sales    for 

1910    1,369,770     14 

For  1908   73,794     ••       1,443,564        14 


Total*    12,107,200        09 

But  the  department  has  still  to  pay  on 

expenses  of  the  year  1910 1,583,592        22 

Its  final  debt  to  the  Treasury  is 10,525,607        84 

Many  other  details  are  found  in  the  pages  which 
follow,  but  there  is  no  trace  anywhere  of  what  the 
English  call  "depreciation,"  that  is  to  say,  amortiza- 
tion, on  either  real  estate  or  equipment. 

The  monopoly  buys  matches  abroad  for  3,206,326 

francs  04,  upon  which  it  pays  671,608  francs  07  cus- 

'  These  figures,  which  do  not  agree,  are  copied  from  the 
official  report. 

202 


FISCAL    MONOPOLIES 

toms  duties,  together  with  3,008  francs  64  in  the  way 
of  incidental  expenses,  forming  a  total  of  3,880,942 
francs  75. 

The  Minister  of  Finance  collects  theoretically  671,- 
608  francs  07  from  the  customhouse  upon  this 
monopoly,  and  at  least  an  equivalent  sum  as  profit 
on  the  sale  of  the  domestic  product.  Therefore, 
his  accounts  are  just  that  much  short  at  the  end 
of  the  year.  Here  we  have  a  bookkeeping  artifice  so 
much  the  more  astonishing  in  that  foreign  matches 
are  prohibited  and  cannot  be  brought  into  the  country 
except  by  the  government. 

3.  In  the  case  of  both  tobacco  and  matches  the 
term  proût  is  applied  to  the  difiference  existing  be- 
tween receipts  and  expenditures.  But,  from  the 
standpoint  of  the  consumer,  this  profit  is  neither  more 
nor  less  than  a  reward  of  extortion,  since  con- 
sumers are  unable  to  procure  at  the  lowest  price  the 
goods  which  the  monopoly  forces  upon  them.  The 
word  profit  is,  therefore,  altogether  a  misnomer. 

In  1891  a  committee  of  the  Chamber  of  Deputies 
suggested  to  the  various  ministers  that  government 
employees  be  allowed  to  share  in  the  profits  of  state 
operation. 

At  that  time  I  had  under  my  direction,  as  an  indus- 
trial undertaking,  the  old  government  railway  system. 
I  answered  that  there  were  no  profits  and  that  conse- 
quently they  could  not  be  divided.  But  would  it  even 
have  been  possible  to  give  to  the  employees  and  labor- 
ers connected  with  the  prosperous  tobacco  and  match 
industries  a  share  in  the  "profits  resulting  from  the 

203 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

sale  of  their  products"?  There  are  no  real  profits; 
there  are  fiscal  advantages  wrung  from  consumers. 

Many  of  those  who  demand  "industrial  accounts" 
do  it  with  the  hidden  hope  that  the  departments  of  to- 
bacco and  matches  are  going  to  become  the  property 
of  the  employees  concerned  in  their  operation,  who 
will  thereupon  enter  into  contracts  with  the  govern- 
ment and  thereby  ensure  for  themselves  "a  share  of 
the  profits."  But  such  profits  are,  as  has  been  already 
said,  only  the  result  of  extortion,  and,  therefore,  would 
inevitably  disappear  if  unsupported  by  the  laws  at 
present  in  force. 

A  fiscal  profit  should  never  be  mistaken  for  an 
industrial  profit. 


204 


CHAPTER  XX 

THE  ALCOHOL   MONOPOLY   IN   SWITZERLAND    AND 

RUSSIA 

1.  Monopolistic     Fictions     of     Emile     Alglave. — Monopoly 

Rejected  in  Germany. — No  Monopoly  in  Austria. — An 
Experiment  in  Italy. 

2.  In  Switzerland,  the  Object  of  the  Monopoly  the  Aboli- 

tion of  Ohmgeld  Duties. — Neither  the  Distillation  of 
Wines  nor  Stone  and  Kernel  Fruits  Affected  by  the 
Monopoly. — Ten  per  Cent,  of  the  Receipts  to  Combat 
Alcoholism. — A  Surprise  Vote. — Numa  Droz. — The 
Electoral  Premium  on  Potatoes. — Restrictions  on  Sale 
in  Switzerland. — Fiscal   Deception. 

3.  Russia. — Moujik    Forbidden    to    Drink    on    Premises. — 

Characteristics  of  the  Liquor  Traffic. — Increase  of 
Public  Drunkenness. — Declaration  of  a  Moral  Purpose. 
— Fiscal    Success. 

I.  About  thirty  years  ago  Emile  Alglave  was  anx- 
ious to  establish  a  monopoly  on  alcohol  in  France. 

Basing  his  appeal  on  authority  he  said,  with  magni- 
ficent assurance,  that  France  would  be  the  last  coun- 
try in  Europe  to  adopt  such  a  monopoly,  and  he  re- 
proached her  with  a  lack  of  progressive  spirit.  He 
cited  the  example  of  Germany,  where,  as  a  matter  of 
fact,  a  monopolistic  project  was  submitted  to  the 
Reichstag  on  February  22,  1886.  But  despite  the  in- 
tervention of  Bismarck,  who  pointed  out  the  financial 

20$ 


WHERE    AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

necessities  of  the  empire  and  the  need  for  reforming 
municipal  taxation,  the  bill  was  rejected  on  the  27th 
of  March,  following,  by  a  vote  of  181  to  3. 

The  great  distillers  supported  the  project  because 
the  government  promised  to  buy  their  alcohol  at  40 
marks,  or  10  marks  more  than  it  was  worth  at  the 
time — a  proceeding  which  would  have  involved  an 
outright  gift  to  them  of  35,000,000  marks.  But,  al- 
though these  particular  manufacturers  might  contem- 
plate with  satisfaction  the  immediate  profit,  the  ques- 
tion naturally  arose  as  to  what  would  happen  if,  later, 
under  various  kinds  of  pressure,  the  government,  in- 
stead of  having  at  its  head  a  man  like  Bismarck,  him- 
self a  prominent  distiller,  should  have  statesmen  anx- 
ious not  to  arouse  any  suspicion  of  favoring  these 
special  interests,  and  who,  moreover,  might  be  in  need 
of  revenues  to  balance  the  budget.  It  was  the  gen- 
eral opinion  that  such  a  monopoly  would  increase  the 
power  of  the  government,  and  convert  the  retailers 
into  electoral  agents.  The  questions  of  rectification 
and  exportation  were  also  debated.  Since  that  hour 
the  question  of  an  alcohol  monopoly  has  been  dead  so 
far  as  the  Reichstag  is  concerned. 

Before  the  alcohol  monopoly  investigating  com- 
mittee of  the  French  government,  in  1887,  M.  Alglave 
expressly  declared  that  Austria  had  adopted  the  policy 
of  monopolizing  alcohol.  He  even  gave  circumstan- 
tial details,  such  as  that  the  price  of  a  single  glass  was 
fixed  at  o  franc  04;  that  the  commission  allowed 
the  tavern  keeper  was  10  per  cent.,  etc.  He  fur- 
ther declared  that   in  Austria  the  measure  was  not 

206 


THE  ALCOHOL  MONOPOLY  IN  SWITZERLAND  AND  RUSSIA 

a  fiscal  one,  since  the  budget  had  a  surplus  of  from 
7  to  8  per  cent.,  but  purely  hygienic.  As  a  matter 
of  fact  the  sole  support  for  these  statements  existed 
in  the  fertile  imagination  of  M.  Alglave  himself. 
There  is  no  alcohol  monopoly  in  Austria. 

Finally  M.  Alglave  attempted  to  invoke  the  example 
of  Italy.  In  1894,  or  seven  years  later  than  the  sitting 
of  the  committee  above  referred  to,  the  Italian  govern- 
ment had  considered  the  question,  but  any  really  seri- 
ous discussion  of  the  proposition  was  defeated  by  the 
outcry  which  arose. 

Consequently  M.  Alglave's  argument  from  example 
proved  to  be  worth  no  more  than  all  the  others. 

Belgium  reformed  its  legislation  regarding  alcohol 
in  1896,  but  the  monopoly  proposed  by  the  Socialist 
group  was  rejected  without  debate.  The  Belgian 
government  increased  the  duties  upon  alcohol  and  pro- 
hibited the  sale  of  absinthe,  but  the  question  of  mo- 
nopoly has  played  no  other  rôle. 

2.  Alcohol  monopoly  is  actually  found  in  only  two 
countries,  viz.,  Switzerland  and  Russia.  Louis  Marin, 
who,  in  1902,  as  deputy  from  Var,  took  up  the  project 
of  M.  Alglave  and  presented  it  to  the  Chamber  of 
Deputies,  said  :  "You  all  know  that  the  monopoly  of 
alcohol  in  Switzerland  and  Russia  is  managed  accord- 
ing to  the  ideas  of  M.  Alglave."  I  did  not  know  it. 
But,  if  either  conforms  to  the  ideas  of  M.  Alglave, 
they  at  least  differ  from  each  other. 

The  establishment  of  the  Swiss  monopoly  had  for 
its  principal  object  the  abolition  of  the  ohmgeld  duties. 

207 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

These  were  inter-cantonal  entrance  duties,  a  species 
of  internal  revenue  tax  at  different  rates,  upon  wine, 
cider,  beer  and  alcohol.  Established  in  i6  cantons  out 
of  22  they  had  proved  a  serious  hindrance  to  freedom 
of  trade  and  commerce  in  the  Swiss  Confederation. 
The  constitution  of  1848  had  prohibited  any  further 
increase  of  them,  and,  in  the  negotiations  over  the 
commercial  treaty  with  France  in  1864,  they  had 
given  rise  to  grave  difïiculties.  The  Federal  constitu- 
tion of  1874  had  ordered  their  abolition  after  January 
I,   1890. 

Article  31  of  the  constitution  guarantees  "liberty 
of  industry  and  commerce  throughout  the  length  and 
breadth  of  the  Confederation."  Article  32  enumerates 
exceptions  to  the  above  in  the  case  of  "salt,  gunpow- 
der, entrance  duties  on  wines  and  other  beverages"  ; 
while  the  amendment  of  1885  adds  to  this  list  "the 
manufacture  and  sale  of  distilled  beverages."  Article 
32  and  following  gives  to  the  Confederation  "the 
right  of  establishing,  by  legislative  act,  regulations 
governing  the  manufacture  and  sale  of  distilled  bev- 
erages" ;  which  declaration,  however,  is  seriously  af- 
fected by  a  qualifying  clause,  the  text  of  which  I  re- 
produce : 

"The  distillation  of  wine,  of  stone  and  kernel  fruits 
and  their  waste,  the  roots  of  the  gentian,  juniper  berries, 
and  other  similar  materials,  is  excepted  from  Federal 
regulations  governing  manufacture  and  taxation." 

This  clause  was  a  triumph  for  the  individual  distil- 
lers of  every  description — makers  of  kirsch,  bitters, 
gin  and  distillers  of  wine.    The  restrictions  apply  only 

208 


THE  ALCOHOL  MONOPOLY  IN  SWITZERLAND  AND  RUSSIA 

to  alcohol  derived  from  amylaceous  sources.  The  sec- 
ond paragraph  of  the  above-mentioned  article  32  adds 
that  "trade  in  non-distilled  alcoholic  beverages  shall 
not  be  subjected  to  any  special  tax  by  the  cantons."' 
The  third  paragraph  of  the  article  declares  that  "the 
net  income  of  the  Confederation  resulting  from  native 
distillation  and  the  corresponding  increase  of  entrance 
duties  upon  foreign  distilled  beverages  shall  be  divided 
among  the  cantons  in  proportion  to  their  population 
as  established  by  the  most  recent  Federal  census." 

The  article  concludes  with  the  following  direction: 

"The  cantons  are  expected  to  employ  at  least  10  per 
cent,  of  the  receipts  in  combating  both  the  causes  and 
the  effects  of  alcoholism."  Very  little  attention  has 
ever  been  paid  to  this  wholesome  bit  of  advice. 

It  is  to  be  easily  gathered  that  the  object  of  the 
amendment  of  October  25,  1885,  was  to  assure  free 
circulation  of  beverages  throughout  the  Confederation 
by  suppressing  cantonal  entrance  duties.  It  is  a  law 
of  liberty. 

On  the  other  hand,  the  mere  granting  to  the  Con- 
federation of  "the  right  to  establish,  by  legislative  act, 
regulations  governing  the  manufacture  and  sale  of 
distilled  beverages,"  certainly  does  not  imply  monop- 
oly. Numa  Droz,  then  minister  of  agriculture,  was 
opposed  to  monopoly,  but  favored  the  suppression  of 
the  ohmgeld  duties.  If  the  amendments  to  the  Federal 
constitution,  submitted  to  referendum  October  25, 
1885,  did  not  absolutely  forbid  the  monopoly  of  alco- 
hol they  were  certainly  not  intended  to  pave  the  way 
for  it.  On  the  contrary,  they  provided  for  a  system  of 
excise  duties  by  which  the  suppression  of  the  ohmgeld 

209 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

duties  would  be  more  effectually  accomplished  than  by 
a  monopoly. 

"In  the  course  of  the  discussion  in  the  chamber  I 
do  not  believe  that  the  word  monopoly  was  pronounced 
a  single  time,"  said  Numa  Droz  in  speaking  of  the 
surprise  produced  when  the  Department  of  the  In- 
terior presented  to  the  Federal  council  three  bills,  two 
of  which  proposed  a  monopoly.  Upon  his  recommen- 
dation, and  by  a  vote  of  4  against  3,  the  Federal 
council  adopted  the  first  bill  presented,  which  pro- 
vided for  excise  duties.  The  committee  of  the  Na- 
tional Council,  however,  espoused  the  bill  creating  a 
monopoly.  The  majority  of  the  Council  thereupon 
capitulated,  on  condition  that  the  Confederation  would 
not  itself  distill  alcohol,  and  the  law  was  actually 
passed  December  23,  1886,  and  approved  May  15, 
1887,  by  a  referendum  vote  of  267,000  votes  against 
138,500. 

As  the  Swiss  were  the  first  nation  to  put  into  prac- 
tice free  institutions  they  have  shown  themselves  ex- 
tremely distrustful  of  this  measure.  In  fact  they  have 
been  so  anxious  to  limit  their  losses  that  they  have 
decreed  that  three-fourths  of  the  alcohol  controlled  by 
the  monopoly  shall  be  put  on  the  foreign  market,  and 
only  one-fourth  sold  at  home.  Nor  shall  this  latter 
amount  exceed  20,000  hectoliters  or  25,700  hundred- 
weight a  year.^ 

It  was  expected  that  the  monopoly  would  yield  a 
net  profit  of  8,840,000  francs,  which  sum  was  to  be 
so  divided  among  the  cantons  that  each  should  receive 

'  See  Numa  Droz,  Études  Économiques. 

210 


THE  ALCOHOL  MONOPOLY  IN  SWITZERLAND  AND  RUSSIA 

an  amount   proportioned   to  the   quantity   of   alcohol 
distilled  within  its  borders. 

The  following  table  gives  the  result  for  the  first 
five  years  :  Fr. 

1887-1888   5,422,316 

1889  4.S47.I08 

1890  6,306,668 

1891  6,013,335 

1892    5778,668 

Since  1896  the  net  profit  has  been  distributed  among 
all  the  cantons  in  proportion  to  their  population.  The 
following  figures  represent  the  amounts  distributed 
from  1906  to  1910:  Fr. 

1906  6,317.544 

1907  6,483,795 

1908  5.985.041 

1909   5,818,790 

1910  6,317,543 

Thus  we  see  that  the  monopoly  has  never  reached 
the  figure  anticipated.  During  the  last  five  years  it 
has  been  30  per  cent,  less  than  what  was  expected 
twenty-five  years  earlier. 

As  far  as  Switzerland  is  concerned  this  is  not  a 
disaster.  But  if  the  experiment  were  to  be  attempted 
in  France,  and  its  provisions  based  upon  the  dreams 
of  Emile  Alglave,  who  prophesied  1,500,000,000 
francs  revenue  from  it,  or  even  upon  those  of  M. 
Guillemet,  who  prophesied  700,000,000  or  800,000,000 
francs,  a  certain  deficit  of  hundreds  of  millions  must 
inevitably  have  been  the  result. 

In  France  M.  Alglave  has  frequently  declared  that 
the  Swiss  monopoly  was  established  first  and  foremost 
for  hygienic  reasons,  and  not  for  fiscal  gain.     That 

211 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

this  is  a  complete  error  I  have  just  shown,  since  the 
Swiss  monopoly  was  established  for  the  purpose  of 
suppressing  the  ohmgeld  duties. 

It  is  true  that  at  first,  under  the  pressure  of  hygien- 
ists,  the  administration  furnished  absolutely  pure 
alcohol.  The  Swiss,  however,  accustomed  to  drinking 
schnapps,  which  provokes  a  strong  irritation  of  the 
throat,  demanded  that  the  alcohol  provided  by  the  mo- 
nopoly should  give  them  the  same  sensation.  The  de- 
partment was  forced  to  add  an  impure  grade  to  the 
rectified  alcohol  in  order  to  give  the  taste  of  fusel, 
without  which  the  monopoly  must  have  gone  com- 
pletely bankrupt. 

To-day  the  Swiss  are  content  with  such  rectifica- 
tion as  the  industry  which  sells  the  alcohol  sees  fit  to 
make. 

3.  According  to  Peter  the  Great,  "Russia's  one  joy 
is  to  drink."  However,  the  people  consume  little 
enough  of  the  more  common  forms  of  alcohol;  2,000,- 
000  to  4,000,000  hectoliters  (53,000,000  to  106,000,- 
000  gallons)  of  wine,  4,000,000  hectoliters  of  beer, 
for  a  population  of  more  than  130,000,000,  or  about 
three  liters  (3  quarts)  per  capita.  When  the  Rus- 
sian wishes  to  indulge  in  his  "one  joy"  he  drinks 
brandy. 

An  alcohol  monopoly  is  not  a  novelty  to  him.  It 
is  an  institution  which  dates  from  1598.  It  has 
passed  through  various  fortunes.  Abolished  in 
1883,  it  was  reestablished  January  i,  1895,  ^^  th€  four 
provinces  of  Perm,  Orenburg,  Samara  and  Ou  fa,  hav- 
ing a  joint  population  of  10,000,000  inhabitants.    This 

212 


THE  ALCOHOL  MONOPOLY  IN  SWITZERLAND  AND  RUSSIA 

population  is  consuming  200,000  hectoliters  (5,300,000 
gallons)  of  alcohol,  or  two  liters  (2  quarts)  per  capita, 
less  than  half  the  consumption  in  France. 

In  Russia  the  people  live  under  a  paternal  régime. 
The  emperor  is  the  "little  father"  of  his  subjects.  He 
must  provide  for  their  welfare;  he  must  watch  over 
them  and  protect  them  from  evil.  The  Russian  peas- 
ant, the  moujik,  has  one  great  fault.  Ill  nourished,  he 
loves  to  drink;  and,  when  he  enters  a  tavern,  he  de- 
mands vodka.  This  is  alcohol  brought  to  40  degrees 
by  an  addition  of  water.  When  he  has  no  more  money 
with  which  to  buy,  he  sells  his  cart,  his  cattle,  his  fur- 
niture. He  even  sells  his  clothes,  so  that  in  winter 
he  would  be  in  danger  of  dying  of  cold  in  the  streets 
if  the  police  did  not  look  after  him. 

The  emperor  of  Russia  says:  "I  do  not  object  to 
my  subjects  drinking  alcohol.  If  they  did  not  drink 
it  irreparable  injury  would  ensue  to  the  finances  of 
my  empire.  Only  I  forbid  the  moujik  to  drink  it  in  a 
tavern."  Consequently  the  peasant  is  sold  a  little 
phial  of  6,  12  or  60  centiliters,  the  cost  of  which  is 
rigidly  proportioned  to  the  contents  of  the  phial.  There 
is  no  object,  therefore,  in  buying  large  quantities  at 
one  time. 

Such  is  the  basis  upon  which  the  monopoly  of  alco- 
hol in  Russia  is  established.  What  have  been  the 
practical  results?  The  alcohol  shops  are  kept  by  offi- 
cials who  receive  fixed  salaries  of  70,  80  and  100 
francs,  with  a  maximum  of  150  francs  per  month. 
They  have  no  interest  whatever  in  developing  trade. 
It  is  a  very  honorable  position,  about  one-thirtieth  of 
these  agents  being  members  of  the  nobility. 

213 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

These  alcohol  shops  have  certain  peculiar  character- 
istics. They  have  neither  corkscrew,  glass,  nor  chair. 
The  phial  that  they  sell  is  sealed  with  a  vignette,  and 
it  is  absolutely  prohibited  to  uncork  it  upon  the  prem- 
ises. The  customer  enters,  pays,  and  takes  the  phial 
away  with  him.  The  shop  is  in  no  sense  a  public 
house. 

The  moujik,  once  in  possession  of  his  bottle,  goes 
out  of  the  shop.  Arriving  in  the  street  he  finds  a  street 
vendor,  who  possesses  what  he  has  been  unable  to 
find  in  the  shop,  namely,  a  corkscrew  and  a  glass.  The 
vendor  ofïers  him  the  use  of  these,  with  a  crust  of 
bread  and  a  piece  of  herring.  While  he  uncorks  the 
magic  bottle  the  moujik  eats  the  crust  of  bread  and  the 
bit  of  herring. 

But  as  the  poor  fellow  is  afraid  of  being  dis- 
turbed by  th-e  police,  if  he  remains  too  long  in  the 
street,  he  gulps  down  the  brandy  and  returns  to  get 
another  bottle.  The  final  result  is  this  :  Instead  of 
drinking  the  liquor  under  shelter,  and  more  or  less 
slowly,  in  a  public  house,  in  front  of  a  good  stove,  as 
was  formerly  the  custom,  the  Russian  peasant  drinks 
in  all  haste,  in  the  open  air,  in  the  street. 

I  have  taken  this  information  from  official  reports 
addressed  to  the  emperor  by  temperance  committees, 
which,  strangely  enough,  are  frequently  headed  by 
the  collectors  of  indirect  taxes  (Directeurs  des  Contri- 
butions Indirectes)  themselves. 

All  these  reports  declare  that  the  present  system  has 
provoked  an  increase  in  public  drunkenness.  In  one 
city  (Ztatooust)  alone,  from  the  ist  of  January  to  the 
l6th  of  August,  1895.  there  were  265  cases  of  public 

214 


THE  ALCOHOL  MONOPOLY  IN  SWITZERLAND  AND  RUSSIA 

drunkenness,  compared  with  155  during  the  preceding 
period — an  increase  of  58  per  cent.  Moreover, 
whereas  the  monopoly  is  directing  its  efforts  toward 
the  suppression  of  drinking  upon  the  premises,  all 
these  temperance  committees  are  united  in  the  desire 
to  reestablish  the  former  state  of  affairs  under  better 
conditions.  For  this  reason  the  attempt  has  been 
made  to  open  to  drinkers  so-called  traktirs,  establish- 
ments where  cakes  may  be  eaten  while  drinking  warm 
beverages,  but  from  which  alcohol  is  proscribed.  Al- 
cohol is  also  excluded  from  breweries,  therefore  the 
moujik  brings  his  phial  with  him  and  pours  the  con- 
tents into  the  beer.  The  efforts  of  the  temperance 
committees  have  also  been  directed  toward  bettering 
this  condition  of  affairs. 

Serge  de  Witte  once  declared  that  the  monopoly  of 
alcohol  in  Russia  had  a  moral,  not  a  fiscal,  aim.  To- 
day the  moral  excuse  has  been  abandoned  and  the  fiscal 
one  openly  proclaimed.  The  receipts  from  the  monop- 
oly play  too  important  a  rôle  to  be  tampered  with. 

As  1  have  already  stated,  from  the  fiscal  point  of 
view,  the  monopoly  has  been  a  success.  In  the  pre- 
liminary budget  for  1912-1913  it  is  estimated  at  763,- 
925,000  roubles  ($393,421,000),  in  a  total  budget  of 
2,900,000,000  roubles  ($1,493.500,000).  It  repre- 
sents more  than  26  per  cent,  of  the  total  revenue.  In 
Russia  there  are  not  as  many  alcoholic  drinks  as  in 
France.  The  vodka  of  the  monopoly  may  satisfy 
the  moujik,  but  it  would  certainly  never  satisfy  the 
majority  of  Frenchmen.^ 

*  See  Appendix  "A." 

215 


CHAPTER  XXI 
FINANCIAL  DISORDER 

1.  Parliamentary  Control. — Jules  Roche. 

2.  The  National  Printing  Office. 

3.  The     Administration     of     the     Navy. — The     Work     at 

Guerigny. 

4.  Cost  of  Naval  Construction. 

5.  Postal   Service. — Telegraphs  and  Telephones. 

6.  The  Telegraph  in  Great  Britain. 

7.  British   Postal   Savings  Banks. 

8.  Plans  and  Regulations  of  Budgets. 

9.  Dissimulated  Loans. 

I.  Jules  Roche,  contemplating  the  consequences  of 
the  purchase  of  the  Western  Railway  of  France,  re- 
marked of  the  whole  transaction  : 

"I  am  considering  only  one  detail  of  the  plan,  namely, 
the  creation  of  a  special  budget  of  the  future  system, 
with  its  special  debt,  its  loans,  and  its  special  titles. 

"Are  we  to  have  two  public  debts  in  France?  A 
public  debt  pure  and  simple,  such  as  already  exists,  se- 
cured by  the  general  resources  of  the  nation,  and  another 
debt,  a  new  debt,  contracted  by  the  state  railway,  and 
consequently  a  state  debt,  secured  by  the  same  resources 
as  the  present  debt,  and  secured  besides,  in  a  supple- 
mental fashion,  by  the  railroad  system  itself  ?  If  not, 
the  term  'special  loans'  is  without  meaning. 

216 


FINANCIAL    DISORDER 

"What  sort  of  financial,  legal  or  political  idea  is  this? 
Is  such  a  conception  financial,  legal  or  political  at 
all?  Is  this  bookkeeping?  Here  is  surely  something  that 
the  decree  of  1862  did  not  foresee!  And  what  would  be 
the  future  of  such  a  plan  if  it  were  ever  adopted  by  the 
great  state  railways? 

"We  should  shortly  have  postal  loans,  telegraph  and 
telephone  loans,  match  loans,  tobacco  loans,  loans  on 
coming  monopolies,  such  as  alcohol,  sugar,  insurance, 
and  petroleum." 

At  present  Socialists  are  abandoning  the  Marxian 
theory,  as  they  dropped  the  theories  of  Fourier,  Cabet, 
Louis  Blanc,  Prudhomme,  etc.  The  more  progressive 
are  seeking  new  theories.  They  assume  that,  if  private 
enterprise  is  suppressed,  states  and  municipalities  will 
produce  all  things  necessary  to  man  much  more  abun- 
dantly, and  in  a  much  more  regular  and  economic 
fashion  than  private  enterprise  has  succeeded  in  do- 
ing. They  have  made  up  their  minds  that  all  economic 
activity  ought  to  be  transformed  into  public  services. 
This  is  their  postulate. 

But  they  have  neglected  to  fortify  their  theories 
with  facts.  Universal  experience  has  proved  that, 
whatever  a  state  does,  it  does  at  a  higher  cost  than 
private  individuals  or  groups,  and  that,  far  from  con- 
centrating its  attention  upon  the  true  objective  point, 
it  always  drags  in  foreign  considerations,  which  ruin 
the  enterprises  of  which  it  has  assumed  the  direction. 
Accounts  are  confused  in  such  a  way  as  to  make  it  next 
to  impossible  to  discover  either  net  cost  or  the  true 
income.  Although  sheltered  from  competition,  instead 
of  being  agents  of  progress,  such  undertakings  foster 

217 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

nothing  but  lethargy  ;  and,  while  accomplishing  so 
little  themselves  they  block  the  way  of  the  more  pro- 
ductive enterprises  of  others. 

Municipalities  move  along  a  straighter  path,  but  the 
same  defects  are  apparent  in  municipal  trading  opera- 
tions that  we  find  in  state  undertakings.  Whence  we 
may  conclude  that  Municipal  Socialism  is  only  another 
condemnation  of  State  Socialism. 

Yet  has  Municipal  Socialism,  down  to  the  present, 
at  least,  abated  its  energy  in  the  establishment  of 
public  tramways,  gas,  electric  lighting,  telephones,  water 
works  and  cheap  housing?  And,  since  it  has  failed  in 
these  enterprises,  what  would  be  the  result  of  similar 
experiments  with  food  supplies,  dressing,  heating  and 
otherwise  occupying  and  amusing  the  people? 

The  Chamber  of  Deputies  approved  article  70  of 
the  Finance  Law  of  1912,  which  created  a  species  of 
financial  autonomy  out  of  the  manufactures  of  Sèvres 
porcelain  in  spite  of  the  sound  arguments  against  the 
measure  presented  by  Jules  Roche.  The  result  of 
such  a  proceeding  would  have  been  a  tenth  special  bud- 
get appended  to  the  general  budget.  If  the  manu- 
facture of  Sèvres  is  a  government  enterprise  its  ac- 
counts should  not  be  separated  from  the  state  budget  ; 
and,  furthermore,  why  separate  them  from  the  gen- 
eral budget  while  the  manufacture  of  Gobelin  tapestry 
remains  attached?  The  article  has  since  disappeared 
from  the  Finance  Law. 

In  our  studies  of  the  administration  of  French 
finances  we  have  frequently  had  occasion  to  demon- 
strate the  incapacity  of  the  state  to  conduct  a  trading 
enterprise,  despite  the  undoubted  intelligence  of  its  of- 

218 


FINANCIAL    DISORDER 

ficials.  Examples  abound  in  the  administration  of  the 
principal  monopolies.  We  have  shown  that  they  manu- 
facture bad  matches  at  high  cost,  and  that  those  which 
come  from  abroad  to  eke  out  our  supply  are  better 
and  cheaper.  Officials  in  charge  of  these  enterprises 
have  neither  initiative  nor  responsibility.  They  are 
hemmed  in  by  regulations  which  do  not  allow  of  the 
cooperation  characteristic  of  private  industry.  Re- 
sponsibility for  failure  or  success  does  not  devolve 
upon  these  officials.  It  is  distributed  among  a  swarm 
of  agents  of  the  hierarchy,  and  vanishes  finally  in  some 
central  bureau.  Any  private  business  which  had  to 
struggle  under  similar  conditions  would  end  in  bank- 
ruptcy. Nor  is  this  state  of  affairs  the  fault  of  man. 
It  is  inherent  in  the  very  nature  of  the  institution 
itself. 

We  find  another  opportunity  of  demonstrating  the 
truth  of  the  foregoing  statement  in  a  building  enter- 
prise, the  history  of  which  deserves  to  be  preserved. 
Such  utter  lack  of  foresight  and  such  an  accumulation 
of  mistakes  are  rarely  found  in  one  and  the  same  busi- 
ness undertaking. 

The  enterprise  referred  to  is  the  rebuilding  of  the 
National  Printing  Office.  If  any  enterprise  could  have 
been  conducted  by  government  agents  it  would  seem 
to  have  been  this  particular  one  ;  for  it  was  confined  to 
construction  work  based  on  rigid  specifications.  We 
have,  it  would  seem,  enough  state  architects  to  bring 
such  a  work  to  a  successful  conclusion.  Yet  the  failure 
was  complete,  and  the  budget  suffered  grievously  in 
consequence. 

219 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

In  the  beginning  the  job  was  as  follows:  ^  To  re- 
build the  National  Printing  Office  upon  a  newly  ac- 
quired site,  and  to  sell  the  buildings  and  ground  in  the 
Rue  Vieille-du-Temple  previously  occupied  by  the 
office.  The  officials  in  charge  presented  the  following 
preliminary  report  to  the  Chamber  of  Deputies: 

Francs 
Purchase   of    a   tract   of   20,000   meters,   9    Rue    de   la 

Convention,  at  Grenelle,  at  a  cost  of 1,002,350 

Complete  rebuilding  and  reëquipping  of  the  printing 
office  as  in  operation  to-day  ;  estimate  verified  by  the 
committee    in    charge 2,960,000 

Total    3,962,350 

But  this  figure  should  be  reduced  by  the  amount  to  be 
reali;^ed  from  the  sale  of  the  property  in  Rue  Vieille- 
du-Temple.   This  has  been  fixed  at   a   minimum  of     3,420,000 
Sale    of  old   materials 100,000 

Total  3,520,000 

Therefore,  taking  all  these  facts  into  consideration,  the 
Treasury  should  only  be  called  upon  for  a  net  ex- 
penditure of  442,350 

Unfortunately  the  managers  of  the  undertaking  had 
forgotten  to  look  at  their  problem  from  all  sides,  and 
Parliament  made  a  great  mistake  in  not  perceiving 
this  in  time. 

In  the  first  place,  it  was  an  act  of  presumption  on 
the  part  of  the  officials  in  charge  to  think  of  selling  the 
old  palace  of  the  Rohans,  then  occupied  by  the  Na- 
tional Printing  Office.  Naturally,  protests  arose  from 
all  sides  against  the  sale  of  this  landmark  of  the  past, 
which  kept  alive  the  memory  of  the  famous  Cardinal, 

*  The  report  to  the  Chamber  of  Deputies  by  Emmanuel 
Brousse  on  Dec.  12,  1912. 

220 


FINANCIAL    DISORDER 

and  to  which  were  attached  so  many  other  historical 
recollections.  Its  possession  was  a  hypothetical  and 
contingent  asset,  it  is  true,  but  the  attempt  to  make  it 
balance  the  expenditure  ought  never  to  have  been  seri- 
ously considered.  This,  however,  is  not  the  point  of 
view  from  which  the  proceeding  is  most  open  to  criti- 
cism. Where  the  mistake  becomes  inexcusable  is  in 
the  estimate  of  the  probable  expense  of  rebuilding. 

The  committee  declared  to  the  Chamber,  when 
presenting  it  with  the  estimate  of  its  architects,  that 
the  rebuilding  would  cost  in  all,  including  ordinary  mis- 
calculations, a  sum  of  2,900,000  francs,  and  that,  with 
this  credit,  all  the  work  could  be  carried  on  upon  a 
generous  scale.  But  in  order  to  reduce  his  original 
estimate,  which  had  been  3,734,000  francs,  to  the 
figure  just  quoted,  the  architect,  with  the  approval  of 
the  committee,  had  had  to  leave  out  one  story  in  most 
of  the  wings,  thus  reducing  the  floor  space  in  the  shops 
by  7,000  square  meters  (7.708  square  yards).  Yet, 
despite  this  eiïort,  in  1904  the  committee  had  to  report 
a  deficiency  of  1.500,000  francs  in  the  preliminary  es- 
timate for  the  construction  of  the  new  building. 

In  the  following  year  it  was  discovered  that  the  esti- 
mate contained  no  provision  for  the  installation  of 
either  heat,  light,  or  motive  power  for  the  mechanical 
equipment.  Consequently  a  new  item  of  750.000 
francs  had  to  be  added  to  the  previous  amount.  Then 
there  had  been  no  provision  in  any  of  the  plans  for 
housing  the  directorate  and  the  subordinate  function- 
aries. According  to  the  documents  submitted  by  the 
Budget  Committee  the  expense  of  rebuilding  the 
property  on  the  Rue  de  la  Convention  must  ultimately 

221 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

amount  to  6,210,000  francs.  The  Chamber  had  been 
told  that  it  would  only  be  2,900,000  francs.  The  ag- 
gregate difference  between  estimate  and  expenditure 
amounted  to  3,310,000  francs. 

Finally  to  this  difference  of  3,310,000  francs  should 
be  added  the  loss  that  the  budget  will  suffer  by  reason 
of  the  failure  to  sell  the  de  Rohan  palace.  Later  sev- 
eral more  mistakes  were  discovered. 

At  the  end  of  December,  1912,  when  the  expendi- 
ture already  incurred  amounted  to  10,445,000  francs, 
the  committee  made  application  for  a  further  credit 
of  4,336,000  francs  to  finish  the  work. 

It  is  understood  that  no  one  can  be  held  directly 
accountable  for  this  state  of  affairs.  The  responsi- 
bility rests  with  the  committee  in  charge  of  the  work, 
which  managed  the  affair  badly,  and  with  the  other 
committees,  which  helped  to  cover  up  official  blunders. 
This  example  is  typical  of  the  arrant  folly  only  too 
common  in  the  conduct  of  state  enterprises,  and  proves 
once  more  that  a  government  is  far  less  skillful  than 
are  individuals  in  the  direction  of  such  enterprises. 

3.  Each  year  the  reports  of  the  postoffice,  telegraph 
and  telephone  systems,  and  even  of  the  Navy,  show 
the  disorder  to  which  all  state  operations  are  liable. 
Yet,  although  complaints  of  maladministration  of 
these  systems  are  incessant,  do  we  not  also  know  that 
Parliament  continues  to  tolerate  insubordination  in 
the  arsenals,  increases  in  salaries,  decreases  in  the 
number  of  hours  of  labor,  and  all  those  generosities 
which,  instead  of  being  an  inspiration  to  production, 
amount  to  so  many  premiums  on  laziness?     Investi- 

222 


FINANCIAL   DISORDER 

gating  committees  are  appointed.  Of  whom  are  they 
composed?  Deputies  from  the  ports  are  placed  on 
Navy  investigating  boards  when  they  should  be  dis- 
qualified by  the  very  fact  alone  that  the  employees  of 
the  Navy  will  be  counted  among  their  constituents. 

But  let  the  following  facts  speak  for  themselves. 
A  commission  appointed  to  investigate  conditions  in 
the  Navy  met  at  Guerigny  in  1908.  It  had  as  its  presi- 
dent, M.  Massé,  deputy  from  La  Nièvre,  on  whose  mo- 
tion a  steel  plant  had  been  founded  at  Guerigny  in 
1900.  The  commission  passed  exactly  one  day  in  the 
town,  after  which  exhaustive  investigation  of  condi- 
tions there  it  submitted  to  the  Navy  department  a 
report  calling  for  new  expenses. 

The  said  steel  plant  of  Guerigny,  begun  in  1900,  has 
been  in  operation  since  1905.  Its  prime  object  is  the 
manufacture  of  Martin  steel,  and,  according  to  the 
authors  of  the  amendment  which  provided  for  its  es- 
tablishment, it  should  produce  armor  plate  at  a  price 
considerably  less  than  that  paid  to  private  companies. 
Now  M.  Rousseau  ^  has  discovered,  and  not  without 
difficulty,  in  view  of  the  complication  of  the  accounts 
of  the  Navy,  that  the  equipment  for  the  manufacture 
of  Martin  steel  must  have  already  cost  more  than 
5,000,000  francs,  while  the  expense  of  the  amortiza- 
tion of  this  outlay  during  ten  years,  according  to  the 
custom  in  the  industry  at  large,  is  500,000  francs. 

Unfortunately,  the  investigating  committee  which 
visited  Guerigny  declared  (in  1909)  that  immediately 
after  the  establishment  of  the  steel  plant  the  use  of 

*  Pour  Sauver  Quelques  Millions. 
223 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Martin  steel  plate  had  fallen  off  considerably.     I  quote 
from  their  report: 

"As  a  matter  of  fact,  the  production  is  300  tons  of 
armor  plate  a  year.  Assuming  that  this  rate  could  be 
maintained,  the  aggregate  cost  of  amortizing  the  equip- 
ment would  amount  to  1,666  francs  a  ton.  Moreover,  it 
is  to  be  feared  that  the  use  of  Martin  steel  is  continuing 
to  decline.  On  the  Waldeck-Rousseau  there  was  37^ 
per  cent,  of  Martin  steel  ;  on  the  Patrie  type  there  was 
only  24  per  cent.;  on  the  Danton,  17  per  cent.;  upon  the 
Jean  Bart,  14  per  cent,  (figures  disclosed  by  the  official 
reports). 

"This  fact  is  highly  disturbing.  The  capital  sunk  in 
the  equipment  for  the  manufacture  of  Martin  steel  will, 
therefore,  never  be  recovered.  The  department  unques- 
tionably made  a  mistake  when,  on  the  motion  of  M. 
Massé,  approved  by  the  Chamber  of  Deputies,  it  saddled 
itself  with  this  equipment. 

"But  the  commission  feels  that  the  plant  at  Guerigny 
ought  to  be  provided  with  equipment  and  machines 
which  will  permit  the  manufacture  of  hardened  steel,  or 
any  other  kind  of  steel  destined  to  supplant  Martin  steel. 

"It  will  probably  be  necessary  to  abandon  the  use  of 
hardened  steel  in  its  turn.  But  if  the  cementing  furnaces 
were  used  during  only  two  campaigns,  it  would  be  suffi- 
cient to  pay  off  the  expense  involved  in  installing  them." 

The  Commission,  consistent  to  itself  in  its  own  in- 
consistency, then  reiterates  its  demand  for  cementing 
furnaces,  and  says  : 

"Out  of  a  total  expenditure  of  5,500,000  francs  the 
cementing  furnaces  only  represent  a  very  small  sum,  since 
the  plan  provides  for  five  at  the  cost  of  70,000  francs 
apiece.     Moreover,  it  is  not  necessary   to   begin  work 

224 


FINANCIAL    DISORDER 

with  the  installation  of  these  furnaces.  The  construction 
of  the  new  workshop  will  take  approximately  three  years. 
A  year  is  amply  sufficient  for  the  installation  of  cement- 
ing- furnaces.  Assuming  that  the  work  will  be  begun  dur- 
ing the  next  year,  or  1910,  it  will  not  be  until  two  years 
after,  or  1912,  that  the  value  of  the  new  steel  rnanufac- 
tured  at  Saint  Chamond  and  at  Creusot  will  be  deter- 
mined ;  it  will  then  be  known  whether  hardened  steel  will 
continue  to  be  used  in  the  Navy,  and  whether  it  will  be 
practicable  to  provide  for  its  manufacture  at  Guerigny." 

Thus,  and  as  a  result  of  the  report  of  the  Commis- 
sion, it  appears  that  the  government  ought  to  be  pre- 
pared to  manufacture  hardened  steel  at  Guerigny,  and 
also  to  await  a  definite  decision  as  to  the  value  of  a 
certain  steel,  before  commencing  work  on  the  furnaces. 

The  committee  declares  that  it  will  take  a  year  to 
install  the  cementing  furnaces  ;  yet  the  expenditures 
are  already  estimated  at  5,500,000  francs. 

Following  the  recommendations  contained  in  the 
committee's  report,  the  Navy  department  demanded 
400,000  francs  credit  on  the  budget  of  19 11,  and  the 
Budget  Committee  was  subsequently  urged  to  raise 
this  figure  to  900,000  francs.  But,  even  with  this 
latter  credit,  six  years  would  be  required  for  the  in- 
stallation of  the  cementing  furnaces.  In  asking  for 
400,000  francs,  then,  the  Navy  was  demonstrating 
its  skepticism,  and,  in  granting  such  a  sum,  the  Budget 
Committee  was  once  more  displaying  its  lack  of  fore- 
sight. In  any  case  both  were  wasting  funds  in  order 
to  appear  to  be  doing  something,  and  not  from  the 
point  of  view  of  the  needs  of  the  Navy,  but  from 
local  considerations. 

225 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Up  to  191 1  the  general  expenses  at  Guerigny  were 
118  per  cent,  of  the  estimated  expenses. 

The  excuse  for  constructing  the  plant  in  the  first 
instance  was  that  such  an  establishment  would  "regu- 
late prices."  But,  in  order  to  regulate  the  price  of 
private  industry,  the  government  ought  to  commence 
by  regulating  its  own. 

The  Director  of  the  Guerigny  works  told  the  In- 
vestigating Committee  that  : 

"The  saving  of  at  least  one  franc  per  kilogram  on  the 
cost  price  of  armor  plate  at  Guerigny  is  also  obtained 
in  the  manufacture  of  special  steel,  and  this  saving  would 
certainly  be  continued  if  we  should  manufacture 
hardened  steel.  In  this  fact  we  have  a  serious  argument 
in  favor  of  the  extension  of  the  manufacture  of  armor 
plate.  By  doubling  the  expense  incurred  up  to  the  pres- 
ent on  account  of  this  manufacture,  we  can  more  than 
triple  the  production;  and  each  ton  of  armor  plate  made 
at  Guerigny  would  represent  an  economy  of  1,000  francs, 
taking  into  consideration  the  market  price.  Five  thou- 
sand tons  of  armor  plate  would  suffice  to  warrant  the  ex- 
pense of  such  an  enlargement." 

Five  million  francs  have  already  been  expended  at 
Guerigny.  Now  the  management  suggests  a  further 
expenditure  of  ten  millions.  The  average  annual  pro- 
duction of  300  tons  is  to  be  increased — allowing  a 
wide  margin — to  1,000  tons  a  year,  with  amortization 
at  I  franc  per  kilogram;  or,  in  other  words,  1,000,000 
francs  a  year,  or  1,000  francs  a  ton.  "How,  upon 
5,000  tons  alone,"  demands  M.  Rousseau,^  "can  such 
an  extraordinary  feat  be  accomplished  as  to  put  aside 

*  See  above. 

226 


FINANCIAL    DISORDER 

I  franc  per  kilogram  upon  the  cost  of  the  industry, 
that  is  to  say,  i,ooo  francs  a  ton,  while  at  the  same 
time  the  equipment  is  amortized  at  2  francs  per  kilo- 
gram, especially  when  there  is  to  be  an  expenditure  of 
10,000,000  francs?"  ^ 

The  Investigating  Committee  declared  the  net  cost 
per  kilogram  of  armor  plate  produced  at  Guerigny  to 
be  I  franc  27  to  i  franc  74,  although  the  charge  for 
amortization  alone  was  i  franc  66  per  kilogram. 

The  report  of  this  same  committee  inspired  still 
more  caustic  comments  on  the  part  of  M.  Rousseau." 

"At  the  present  time  it  is  supererogation  to  state  that 
the  documents  emanating  from  the  French  Parliament 
lack  accuracy.  It  is  an  accepted  fact,  and  is  apparent 
above  all  in  whatever  pertains  to  the  Navy.  That  the 
information  contained  in  these  documents  is  accepted 
without  sufficient  scrutiny  has  been  proven  again  and 
again.  It  has  been  proven  also  that  investigations  are 
not  made  with  all  the  care  desirable.  For  example,  we 
read  in  the  report  of  the  Committee  appointed  to  investi- 
gate conditions  in  the  Navy  that  'the  cost  of  turbines  ap- 
pears particularly  exaggerated.'  In  the  first  place,  what 
is  this  word  'appears'  doing  in  the  conclusions  of  an  in- 
vestigating committee?  Why  didn't  the  Committee  get 
to  the  bottom  of  the  matter?  What  basis  of  judgment 
did  it  have  ?  The  premises  were  as  follows  :  we  quote 
the  report  : 

"  'Justice,  reciprocating  engine,  18,500  h.p.,  2,614,000 
francs. 

"  'Voltaire,  turbine,  22,500  h.p.,  4,800,000  francs. 

^  L'Informateur  Parlementaire. 
^  See  above  citation. 

227 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"  'At  the  same  rate  of  cost  as  the  engine  on  the  Justice, 
a  reciprocating  engine  of  22,500  h.p.  would  cost: 

22,500 

2,6i4,oooX =3,267,500  francs 

18,500 

"'The  turbines  have  thus  cost,  per  man-of-war,  i,- 
532,500  francs  more  than  reciprocating  engines,  or  about 
10,000,000  francs  for  the  six  men-of-war.  In  reality,  the 
turbines  are  less  expensive  to  construct  than  reciprocating 
engines.  As  a  result,  there  is  a  colossal  profit  for  the 
contractors  after  deduction  of  all  their  expenses.  It 
appears  beyond  doubt  that  the  Navy  has  paid  much  too 
high  a  price  for  the  turbines.' 

"It  is  a  universally  admitted  principle  that  like  objects 
alone  are  comparable.  It  is  well  that  it  did  not  occur 
to  the  author  of  the  little  calculation  quoted  above  to 
compare  turbines  with  automobile  motors,  because,  with 
the  same  serenity,  he  would  have  declared  the  contractors 
absolutely  ruined,  rendering  the  stock  of  their  dock  yards 
valueless,  while,  on  the  contrary,  he  has  given  them  an 
enhanced  value." 

4.  In  any  estimate  of  cost  price  there  are  two  fac- 
tors, direct  expenses  and  general  expenses. 

In  the  navy  yards  general  expenses  are  undivided 
expenses,  uniformly  computed  at  28  per  cent,  of  labor 
costs.  In  the  case  of  the  Jean-Bart  they  were  com- 
puted at  24  per  cent.^  The  proportion  is  a  purely 
arbitrary  one. 

M.  Klotz,  then  General  Secretary  (Rapporteur 
Général),  has  said  in  this  connection: 

*  Rousseau.  Pour  Sauver  Quelques  Millions,  see  Journal  des 
Économistes,  Dec.  31,  191 1. 

228 


FINANCIAL   DISORDER 

"In  the  cost  of  work  done  by  arsenals  the  following' 
expenses  appear  : 

"a.  Expenses  of  operating  the  workshops  of  the  ar- 
senal, etc. — labor  expenses  and  cost  of  supplies  (coal, 
dynamos  of  workshop  motors,  etc.),  called  undivided  ex- 
penses. 

"b.  Expenses  of  equipment,  applied  especially  to  new 
construction:  the  small  equipment  used  in  building  (tools, 
borers,  electric  apparatus,  stationary,  construction  stocks, 
and  a  certain  number  of  machine  implements). 

"Among  general  expenses  are  not  included  : 

"c.  Wrongly,  we  think,  the  salaries  of  technical  em- 
ployees, engineers,  and  their  assistants  engaged  solely  in 
construction  work.  These  are  paid  according  to  regula- 
tions contained  in  special  chapters  of  the  budget.  The 
cost  of  a  ship  constructed  in  the  arsenal  would  be  in- 
creased so  much  more. 

"d.  Rightly,  the  expenses  of  large  equipment  :  An  ar- 
senal is  necessary  in  time  of  war.  From  this  viewpoint 
workshops,  dry  docks,  derricks,  etc.,  are  prime  necessities. 
In  time  of  peace  the  state  must  choose  between  two  prob- 
lems :  to  leave  this  equipment  unused,  or  to  employ  it  in 
new  construction.  The  state  has  an  evident  interest  in 
adopting  the  second  solution.  As  the  equipment  would 
exist  even  if  there  were  no  new  construction,  it  is  legiti- 
mate not  to  include  expenses  of  this  character  in  the  cost 
of  such  construction." 

Whatever  else  he  may  say  M.  Klotz  at  any  rate 
acknowledges  that  general  expenses  are  not  accounted 
for  in  the  Navy.  The  distinction  which  he  makes 
between  the  material  to  be  accounted  for  and  the  ma- 
terial not  to  be  accounted  for,  in  the  cost  of  a  ship, 

229 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

is  a  demonstration  in  itself  of  the  arbitrary  char- 
acter of  construction  estimates:  As  equipment  is  used 
and  replaced  during  times  of  peace,  it  is  only  just  to 
add  to  the  original  cost  of  the  products  manufactured 
the  cost  of  the  equipment  used  in  such  manufacture. 

The  Navy  department  had  fixed  the  net  cost  per 
ton  of  the  three  steel  cruisers,  Jules  Ferry,  Léon  Gam- 
betta  and  Victor  Hugo  at  2,211  francs,  2,230  francs, 
and  2,286  francs,  respectively. 

The  Committee  of  Accounts  on  the  work  raised  the 
general  expenses  from  12  to  23  per  cent.,  so  that  the 
cost  per  ton  came  to  2.512  francs  for  the  Léon 
Gambetta,  2,605  francs  for  the  Victor  Hugo,  and 
2,717  francs  for  the  Jules  Ferry,  a  cost  higher  than 
that  of  similar  ships  constructed  by  private  companies. 
We  quote  in  full  the  two  estimates  : 

Official  Cost  Real  Cost 
Fr.  Fr. 

Léon  Gambetta 27,998,858  31,530,858 

Jules  Ferry  27,757,364  34,123,364 

Victor  Hugo   28,689,964  33,9Si>964 

In  the  case  of  the  Jules  Ferry  a  covered  stocks  was 
erected,  which  was  used  only  once,  because  the  Jules 
Ferry  was  the  last  large  boat  constructed  at  Cher- 
bourg. 

5.  In  the  report  of  M.  Dalimier,  on  the  postal,  tele- 
graph and  telephone  services,  for  the  budget  of  191 2, 
repetitions  of  the  usual  complaints  are  to  be  found  : 
Absence  of  preliminary  estimates,  apparent  impossi- 
bility for  the  department  to  furnish  any  indication  as 
to  the  total  expenditures  to  be  covered,  etc. 

230 


FINANCIAL    DISORDER 

M.  Dalimier  says  : 

"As  presented,  the  budget  of  the  postal,  telegraph  and 
telephone  services  ^  is  indefinite.  It  contains  certain 
minute  details  which  make  the  total  absence  or  the  insuf- 
ficiency of  information  regarding  really  important  ex- 
penses appear  the  more  regrettable. 

"The  utter  lack  of  coordination  results  in  the  juxtapo- 
sition of  partial  accounts,  prepared  and  presented  with 
a  disingenuousness  which  justifies  all  criticism: — general 
lack  of  method  ;  too  little  attention  to  financial  rules  and 
true  bookkeeping  principles  ;  no  limit  to  the  expenses  when 
the  sources  of  loans  are  abundant  ;  accounts  which  are 
not  sufficiently  definite  ;  frequent  disorder  in  the  prepara- 
tion and  execution  of  the  work  as  well  as  in  the  man- 
agement of  the  loans  !" 

In  Émil  Dupont's  report  to  the  Senate,  regarding 
this  same  budget,  I  read  : 

"Many  of  these  plans  were  not  thoroughly  developed 
when  appropriations  were  asked  for.  In  putting  down 
200,000  francs  as  the  cost  of  inaugurating  the  work  of 
enlarging  the  administrative  offices  of  the  service  and  re- 
building the  Postoffice  itself,  the  department  was  simply 
taking  a  figure  at  random.  It  acted  in  ignorance  as  to 
what  part  of  the  work  the  sum  was  to  be  applied,  nor  is 
the  department  yet  aware,  probably,  how  the  money  is  to 
be  divided  between  the  two  buildings  which  are  to  be 
rebuilt. 

"The  same  statement  holds  good  in  the  case  of  the 
baggage  department  of  the  Eastern  railway  station  of 
Paris.  The  department  demanded  100,000  francs  and 
found  out  afterward  that  70,000  francs  would  suffice  for 
1912. 

*  See  Journal  des  Économistes,  March  5,  1912. 
231 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"These  overestimates  in  the  case  of  important  loans 
have  been  going  on  for  some  years,  and  are  a  direct 
result  of  the  carelessness  of  those  in  charge  of  building 
loans.  As  further  examples,  we  might  cite  the  substa- 
tions of  Martignac,  120,000  francs;  Rue  Bertrand,  115,- 
000  francs;  and,  in  the  city  of  Lyon,  316.000  francs." 

The  report  of  M.  Dalimier  shows  up  an  ingenious 
administrative  trick,  characteristic  of  a  particular  psy- 
chological state. 

But  let  us  take  another  very  similar  example  of 
the  same  tendency.  In  1911  the  Postoffice  department 
demanded  a  loan  of  522,135  francs  for  work  on  vari- 
ous postoffices.  In  191 2  it  asked  again  for  an  abso- 
lutely identical  amount.  The  first  loan  was  applied  to 
work  then  going  on;  the  second  had  for  its  object  the 
depreciation  of  work  concerning  which  there  has  never 
been  any  discussion,  and  which  will  require  an  expendi- 
ture of  585,000  francs. 

A  "passion  for  spending"  is  characteristic  of  all  pub- 
lic departments.  The  Dalimier  report  states  that  the 
work  of  reconstruction  going  on  at  the  central  tele- 
graph ofîfïce  was  started  only  by  the  aid  of  a  loan  of 
100,000  francs  obtained  in  1908;  and  that  each  of  the 
following  years  saw  this  figure  grow,  little  by  little, 
until  it  stopped  finally  at  979,000  francs,  not  includ- 
ing the  100,000  francs  demanded  in  19 12  for  the  in- 
stallation of  a  low-pressure  heating  system. 

The  report  of  M.  Dalimier  also  furnishes  a  certain 
number  of  characteristic  figures  concerning  the  Post- 
ofifice  expenditures  : 

232 


FINANCIAL    DISORDER 

Expenses  Expenses 

Provided  for  Incurred 

Fr.  Fr. 

Lyon  510,853  826,401 

Auxerre    277,000  393,920 

Martignac     750,000  870,481 

Dijon    743,950  958,901 

Rue   Bertrand    640,000  755,483 

Bureau  des  Archives   1,000,000  2,650,370 

In  the  case  of  the  telephone  office  in  the  Rue  des 
Archives  ^  the  prehminary  estimate  of  expenditures 
covering  purchases  of  land  and  construction  reached 
1,900,000  francs,  while  the  entire  building  will  cost 
2,692,202  francs.  Assuming  that  half  the  building 
of  the  Bureau  of  Archives  is  to  be  devoted  to  a  multi- 
ple switchboard,  designed  for  500  subscribers,  each 
subscriber  will  cost  the  state  269  francs.  It  is  true 
that  "immense  hallways  and  superb  galleries,  offices, 
rest  rooms,  and  rooms  open  to  20,000  subscribers"  are 
to  be  found  there. 

6.  The  celebrated  manufacturer,  H.  Laws  Webb,  at 
a  meeting  of  the  London  Chamber  of  Commerce,  on 
February  17,  1911,  and  the  Spectator,  as  well,  have 
made  public  the  serious  embarrassment  which  the  op- 
eration of  telegraph  lines  has  entailed  upon  the  English 
government. 

Forty-five  years  ago,  in  1866.  the  government  first 
proposed  the  purchase  of  the  British  telegraph  lines, 
then  valued  at  57,500,000  francs  ($10,925,000).  Ne- 
gotiations lasted  about  three  years,  or  until  1869,  when 
Parliament    appropriated    175,000,000    francs    ($33,- 

'  See  the  Chéron  report  of  May  10,  191 1,  upon  a  demand  for 
supplementary  appropriations. 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

250,000)  for  the  carrying  ont  of  the  pnrchase,  or  more 
than  three  times  the  original  estimate.  Moreover,  the 
government  was  forced  to  pay  a  further  sum  of  100,- 
000,000  francs  ($19,000.000)  to  the  railway  compa- 
nies for  their  rights  over  the  telegraph  lines  established 
along  the  railroad  tracks.  Therefore,  the  complete 
ac(iuisition  of  the  undertaking  cost  the  British  govern- 
ment 275,000,000  francs  ($52,250,000). 

It  had  been  predicted  that,  during  the  course  of 
some  twenty  years,  the  net  returns  from  the  operation 
of  the  telegraph  would  contribute  toward  a  very  sensi- 
ble reduction  of  taxation.  But  this  delusion  quickly 
vanished.  There  was,  it  is  true,  a  small  net  profit  in 
the  first  two  years  of  state  operation,  but  afterward 
the  receipts  were  never  sufficient  to  meet  the  interest 
on  the  capital  invested  ;  and,  during  thirty-nine  years, 
this  enormous  deficit  has  been  borne  by  the  Treasury, 
that  is  to  say,  by  the  people. 

Finally,  under  the  pressure  of  public  opinion,  which 
had  anticipated,  as  a  consequence  of  such  a  measure, 
an  increase  in  business  and  consequently  of  receipts, 
telegraph  rates  had  to  be  reduced.  The  result,  how- 
ever, was  exactly  the  opposite  of  what  had  been  proph- 
esied. On  the  one  hand,  the  expenditures  for  main- 
tenance and  operation  increased  enormously  under 
government  administration,  while  the  necessary  keep- 
ing up  to  date  of  the  installation  rendered  the  receipts 
more  and  more  insufficient  and  the  demands  on  the 
Treasury  more  and  more  insistent. 

When  one  takes  into  account  all  the  elements,  and, 
more  especially,  the  amount  of  the  original  capital, 
which  has  never  been  paid  ofï,  the  advances  made  by 

234 


FINANCIAL   DISORDER 

Parliament,  which  have  never  drawn  any  interest,  and 
the  annual  deficits  on  operation,  the  total  commercial 
loss  caused  to  the  country  by  the  purchase  of  the  tele- 
graph amounts  at  least  to  £35,000,000  ($170,450,- 
000).  The  English  taxpayer  has  not  even  the  conso- 
lation of  thinking  that  the  government  possesses  an 
appreciable  asset  to  offset  this  loss,  because,  in  the 
case  of  this  particular  enterprise,  each  year  of  its  op- 
eration entails  a  supplementary  loss  of  more  than  25,- 
000,000  francs  ($4,750,000).  From  a  commercial 
point  of  view  the  purchase  has  been  a  complete  failure. 
The  English  press  makes  the  following  comments: 
The  partisans  of  government  ownership  invariably 
reply  to  the  charge  that  the  British  telegraph  lines 
have  been  a  heavy  financial  burden  to  the  taxpayers 
with  the  statement  that  the  public  has  received  com- 
pensation in  the  form  of  a  better  and  cheaper  service. 
This  assertion  is  plausible,  but  not  convincing.  Even 
if  it  were  sound,  one  would  be  forced  to  ask  by  what 
right  the  whole  body  of  taxpayers  is  made  to  subsi- 
dize people  making  regular  use  of  the  telegraph  but 
constituting  a  minority  of  the  population?  The  ex- 
pense of  operation  per  million  telegraphic  words  is 
actually  more  than  it  was  thirty  years  ago  in  Great 
Britain. 

7.  At  a  conference  of  postal  employees,  held  at  Les- 
lie, April  18,  191 1,  Mr.  Crossley  declared  that  the 
Postal  Savings  Bank  suffered  an  annual  loss  of  100,- 
000  pounds  sterling  ($487,000),  due  to  bad  adminis- 
tration and  bad  investments.^ 

^The  Morning  Post,  April  19,  191 1. 
235 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

8.  When  I  was  a  member  of  the  Municipal  Council 
of  Paris,  of  the  Chamber  of  Deputies,  and  the  Budget 
Committee,  I  watched  with  the  greatest  interest  the 
infinite  pains  taken  by  my  colleagues  to  set  down  on 
paper  (by  decreasing  the  prehminary  estimates  of  ex- 
penses and  increasing  the  provisional  receipts),  a  bal- 
ance in  which  the  receipts  would  present  a  more  or  less 
insignificant  surplus.  As  General  Secretary  of  the 
budget  I  was  accustomed  to  place  at  the  head  of  my 
report  the  estimated  figures  of  the  budgets,  as  voted, 
together  with  figures  of  the  supplementary  appropria- 
tions which  usually  had  to  be  added  during  the  year. 

In  a  long  financial  discourse  before  the  Chamber  of 
Deputies  Fernand  Faure  defined  the  theory  of  two 
budgets  :  the  estimated  budget  voted  and  the  real  bud- 
get spent. 

At  the  present  time  the  Chamber  of  Deputies  spends 
weeks  in  examining  the  plan  of  the  budget.  On  Oc- 
tober 23,  1884,  in  one  single  sitting  the  accounts  of 
1871,  1872,  1873,  ^"d  1874  were  approved.  In  one 
single  sitting,  also,  the  accounts  of  1876,  1877,  1878, 
1879,  were  accepted  and  this  11,  10,  9,  and  8  years, 
respectively,  after  the  close  of  the  years  concerned. 

In  19 1 2  the  Committee  on  Final  Accounts  of  the 
budget  decided  to  examine  in  detail  the  accounts  sub- 
mitted to  it.  The  first  report,  published  in  July  of  the 
same  year,  and  the  work  of  Louis  Marin,  relates  to 
the  accounts  of  the  minister  of  Foreign  Affairs  for 
1907.    It  lays  bare  the  following  facts: 

I.  That  the  various  expenditures  are  often  set  down 
in  such  fashion  as  to  conceal  the  real  object  of  the 
expenditure. 

236 


FINANCIAL   DISORDER 

2.  That  inaccuracy  in  deduction  and  confusion  of 
matter  are  the  rule. 

3.  That  violations  of  the  regulations  in  force  are 
chronic. 

4.  That  a  great  number  of  sales  made  in  the  name 
of  the  department  are  irregular  or  fictitious. 

5.  That  waste  abounds,  and  that,  whereas  many  em- 
ployees are  paid  too  little,  others  benefit  by  unjusti- 
fiable generosity. 

Now  the  department  of  Foreign  Affairs  has  noth- 
ing to  produce,  nothing  to  sell.  It  does  not  need  any 
special  equipment  for  the  carrying  on  of  its  work.  It 
does  not  have  to  watch  the  market  price  of  supplies 
and  to  buy  them  under  the  best  possible  conditions. 
In  a  word,  it  does  not  have  to  do  any  of  the  things 
required  of  a  trading  enterprise,  in  seeking  openings, 
etc.  Its  staff  is  easy  to  manage,  and  has  the  reputa- 
tion of  being  devoted.  What  would  happen,  then,  if 
the  department  were  called  upon  to  manage  a  com- 
mercial undertaking? 

9.  All  extravagant  departments  try  to  negotiate 
appropriations  in  a  more  or  less  round-about  manner. 

We  have  worked  out  a  grand  naval  program,  which 
is  to  extend  over  a  period  from  19 12  to  January  i, 
1920.  Its  object  is  to  add  units  to  our  fleet  and  to 
increase  the  facilities  of  the  ports  which  are  to  re- 
ceive them. 

The  outline  of  the  plan  includes  a  certain  Article  9 
which  authorizes  the  government  to  construct  ships 
enumerated  in  a  certain  schedule  "A"  in  such  man- 
ner as  will  insure  the  completion  of  sixteen  men-of- 

22>7 


WHERE    AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

war  on  January  i,  1920.    The  two  paragraphs  read  as 
follows  : 

"The  expenses  of  carrying  on  the  new  construction 
will  be  provided  for  by  entering  the  annual  appropria- 
tions mentioned  in  schedule  'B'  upon  the  budget  for 
the  fiscal  years  1912-1919. 

"In  case  the  expenditures  of  one  fiscal  year  should  be 
greater  than  the  provisions  of  the  said  schedule  warrant, 
the  excess  shall  be  carried  over  by  anticipation  to  the 
appropriations  for  the  following  year  within  a  maximum 
limit  fixed  each  year  by  the  Finance  Law." 

The  construction  work  to  be  carried  out  between 
January  i,  1912,  and  January  i,  1920,  will  involve, 
according  to  the  original  plan  of  1910,  an  expenditure 
of  1,326,000  francs.  The  recent  loss  of  the  Liberté 
has  increased  the  amount  in  round  figures  to  1,400,- 
000,000  francs  ($266,000,000). 

The  government  was  anxious,  and  rightly  so,  to 
charge  these  loans  to  ordinary  expenditures.  Yet  it 
resorted  to  eating  its  corn  before  it  was  ripe,  like  Pa- 
nurge.  And  this  roundabout  method  was  finally 
adopted  by  the  Chamber  of  Deputies. 

Two  estimates  were  made,  one  indicating  the  actual 
amount  to  be  expended  per  year  for  new  construction  ; 
the  other  showing  the  distribution  of  the  annual  ap- 
propriations over  the  entire  period. 

The  appropriations  for  1912,  1913,  and  1914  were 
the  smallest  for  the  period,  while  the  proposed  ex- 
penses were  at  their  maximum  in  1913  and  1914.  The 
two  estimates  in  detail  were  as  follows  : 

238 


FINANCIAL    DISORDER 


Estimated 

Estimated 

Expenditures 

Appropriations 

Ft. 

Fr. 

177,327,000 

160,000,000 

204,128,000 

1 70,000,000 

229,149,000 

175,000,000 

204,439,000 

180,000,000 

189,252,000 

180,000,000 

159,800,000 

180,000,000 

143,684,000 

180,000,000 

90,934,000 

180,000,000 

1,398,713,000 

1,405,000,000 

I9I2 

I9I3 
I9I4 

I9I5 

I9I6 

I9I7 
I9I8 
I9I9 


Up  to  19 1 6  the  expenditures  exceed  the  appropria- 
tions by  139,295,000  francs  ($26,466,050),  but  the 
Navy  is  empowered  to  carry  over  the  excess  by  antici- 
pation upon  the  appropriations  of  the  following  years. 
The  sole  check  to  such  mortgaging  of  the  future  is  a 
provision  permitting  Parliament  to  fix  a  maximum 
each  year  in  the  Finance  Law. 

Thus  the  custom  of  advances  from  the  Treasury, 
which  are  to  grow  from  year  to  year,  has  been  firmly 
established.  The  Chamber  of  Deputies  has  specified, 
in  the  hope  of  decreasing  the  figure,  "that  the  excess 
shall  be  regulated  with  the  help  of  supplemental 
credits" — a  practical  application  of  the  method  of  bal- 
ancing budgets  by  means  of  supplementary  appropria- 
tions. 

Senator  Gauthier,  for  the  Finance  Committee, 
brought  forward  strong  objections  to  this  system, 
which  he  justly  described  as  a  "disguised  loan,  or  a 
loan  by  annual  installments."  He  pointed  out  all  the 
frauds  which  would  result. 

"The  system  of  anticipations  and  that  of  supplementary 
credits  superimposed  upon  it,  has  the  advantage  of  au- 

239 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

thorizing  and  legalizing  expenditures  not  covered  by  the 
original  appropriations;  but  it  does  not  create  any  new 
revenue.     The  deficit  still  exists." 

Each  man-of-war  had  been  estimated  at  a  uniform 
cost  of  62,525,000  francs,  when  made  in  the  arsenals, 
and  64,000,000  francs  in  private  shipyards.  As  a 
matter  of  fact,  they  have  all  cost  exactly  the  same,  ex- 
cept the  new  Liberté,  constructed  by  the  government, 
which  cost  72,000,000  francs.  England  and  Germany 
are  providing  battleships  of  26,000  tons.  Will  we  be 
long  content  with  only  thirteen  battleships  in  the  dock- 
yards ? 

The  minister  of  Finance  "agreed  to  insert  into  the 
Finance  Law  of  1913  clauses  purporting  to  cover  by 
corresponding  available  resources  the  entire  amount 
of  expenditures  incurred,  which  expenses  will  thus 
appear,  at  the  end  of  the  period  of  construction,  as 
arranged  for  by  the  law  providing  for  the  naval  pro- 
gram." In  so  doing  he  acknowledged  the  soundness 
of  the  criticisms  of  Article  9,  made  by  the  finance  com- 
mittee of  the  Senate.  But  he  had  already  accepted 
for  himself,  and  he  has  made  the  Chamber  of  Depu- 
ties accept  his  system. 

I  cite  this  case  to  show  by  what  processes  a  depart- 
ment may  attempt  to  secure  resources  by  the  help  of 
disguised  loans.  It  tries  to  escape  from  a  unified 
budget  by  all  sorts  of  devious  methods. 

We  can  judge  to  what  plundering  the  general  bud- 
get would  be  handed  over  if  each  department  had  its 
own  autonomous  industrial  budget. 


240 


CHAPTER  XXII 
THE   PURCHASE   PRICE 

Telephones. — The   Southern  Canal. — Swiss   Railways. — The 
Western  Railroad. — The  "Opération  Blanche." 

When  there  is  some  undertaking  to  be  purchased 
the  partisans  of  nationalization  and  municipalization 
always  start  the  ball  rolling  by  saying:  "Oh,  it  will 
cost  practically  nothing,"  and  then  they  proceed  to 
reveal  their  economic  limitations  by  making  estimates 
which  are  invariably  lower  than  the  facts  warrant. 

When  the  French  government  decided  to  take  over 
the  telephone,  it  estimated  the  cost  at  5,000,000  francs. 
The  company  demanded  18,800,000  francs.  The  state 
was  finally  forced  to  compromise  at  9,313,000  francs, 
a  figure  which,  with  interest  and  costs  added,  ulti- 
mately increased  to  11,334,000  francs,  or  126  per  cent, 
more  than  the  first  estimate. 

Again,  when  the  government  determined  to  pur- 
chase the  Southern  canal,  an  outlay  generally  regarded 
as  wholly  unnecessary,  advocates  of  the  enterprise 
were  unanimous  in  their  enthusiasm  over  the  manifest 
bargain.  "It  will  cost  the  state  nothing."  But  the  ar- 
bitration commission  ordered  the  state  to  pay  to  the 
Southern  company  an  annual  indemnity  of  750,000 
francs,  based  on  a  capital  of  25,000,000  francs. 

241 


WHERE   AND   WHY    PUBLIC   OWNERSHIT    HAS    FAILED 

Nor  is  France  the  only  country  furnishing  ex- 
amples of  such  frauds.  Switzerland  had  similar  ex- 
periences when  she  decided  to  purchase  the  railways. 
The  Federal  government  appropriated  a  sum  of  54,- 
300.000  francs  for  the  Central.  The  line  actually  cost 
her  75,000,000  francs,  or  20,700,000  francs  (36  per 
cent.)  more. 

Fifty-four  million  francs  was  afterward  appropri- 
ated for  the  Northeastern  line;  82,000,000  francs,  or 
28,000,000  francs  (51.8  per  cent.)  more,  was  the 
actual  price.  The  original  appropriation  for  the 
Swiss  Union  was  31,700,000  francs;  40,000,000 
francs,  or  26.2  per  cent,  more,  was  the  final  figure. 

An  account  of  the  government's  underestimate  of 
the  cost  of  the  Western  line — the  so-called  "opération 
blanche"  of  M.  Barthou — has  already  been  described.^ 
The  state  had  appropriated  in  all  220,000,000  francs 
to  cover  the  cost  of  purchase.  It  actually  paid  321,- 
000,000  francs  or  more  than  101,000,000  francs  over 
the  original  estimate. 

'  See  Book  2,  Ch.  8. 


242 


CHAPTER  XXIII 

DELUSIONS     OF    PROFIT    AND     THE    LIFE    INSUR- 
ANCE  MONOPOLY    IN    ITALY 

1.  The   Law   of  April  4,    1912. — Legal    Excuse. — Delusions 

of  Profit. — Private  Companies. — The  Propaganda. — 
Officials  as  Insurance  Brokers. — Work  for  the  Sake 
of  Service  and  Not  for  Gain. — Contradiction  in  Terms. 
— The  Commissions  paid  by  French  Companies. — Divi- 
dends of  Private  Companies  in  France. — Probable  Ad- 
vantage to  Italy. 

2.  Provincial    and    State   Insurance. — Compulsory    Fire   In- 

surance in  Germany,  Bavaria  and  Switzerland. — In  the 
Côte-d'Or. 

I.  In  order  to  be  assured  that  no  deceptions  would 
be  practiced  on  it,  in  buying  out  the  insurance  com- 
panies, the  Italian  government  put  itself  quite  simply 
in  their  place.  The  resulting  monopoly,  confirmed  by 
the  law  of  April  4,  1912,  had  for  its  principal  object 
the  establishment  of  so-called  labor  pensions.  "The 
profits  drawn  from  this  monopoly  will  be  paid  into 
the  National  Insurance  Fund,  upon  the  books  of  which 
any  workman  engaged  in  either  industry  or  agricul- 
ture may  be  entered,  provided  he  is  not  paying  an 
annual  government  tax  exceeding  30  francs." 

The  real  excuse  for  the  bill  was  the  activity  of  the 
French  and  Fnglish  governments  in  passing  insurance 
laws.     The  Italian  government  decided  that  it  ought 

243 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

to  bestir  itself  along  the  same  lines.  Therefore,  in- 
stead of  taking  the  sums  necessary  for  its  pension 
scheme  from  general  budget  funds,  it  created  a  spe- 
cial fund  by  establishing  an  insurance  monopoly. 
Moreover,  by  the  destruction  of  institutions  which 
have  been  the  most  powerful  agents  in  stimulating 
the  spirit  of  individual  thrift,  the  government  hoped 
to  promote  a  system  of  social  thrift.  The  irreconcil- 
able contradiction  existing  between  free  and  compul- 
sory insurance  could  not  have  been  revealed  in  a  more 
striking  fashion,  and  it  is  only  necessary  to  couple 
adjectives  and  noun  in  order  to  show  the  deceptive 
character  of  all  enterprises  of  this  nature. 

But,  it  is  strange  enough  that  financiers  as  shrewd 
as  the  Italians  should  allow  themselves  to  be  deluded 
by  the  hope  that  the  insurance  monopoly  would  yield 
large  resources.  They  have  undoubtedly  been  seduced 
by  the  sight  of  the  profits  of  insurance  companies. 
But  are  such  profits  possible  under  government  ad- 
ministration ? 

In  the  first  place,  in  order  to  recruit  policyholders, 
an  active  propaganda  is  indispensable.  The  policy- 
holders of  life  insurance  companies  do  not  apply  in 
the  first  instance  to  the  companies.  They  must  be 
sought  for  diligently  and  persuaded  to  take  out  a  policy 
by  an  insurance  broker,  who  demands  a  good  and  suffi- 
cient reward  for  his  efforts  in  bringing  about  such  in- 
vestment. What  measures  has  the  Italian  government 
taken  to  attract  policyholders? 

In  presenting  his  bill  to  the  Chamber  of  Deputies, 
the  minister  responsible  for  it  declared  that  the  Na- 
tional Insurance  Fund  "ought  to  undertake  a  cam- 

244 


DELUSIONS    OF    PROFIT 

paign  of  education  which  should  penetrate  into  the 
farthest  and  quietest  corners  of  Italy,  even  where  the 
ordinary  business  man  does  not  go  on  account  of  the 
improbability  of  any  success  attending  his  efforts. 
Therefore,  the  National  Insurance  department  will  ac- 
cept as  agents  notaries,  registrars,  tax  collectors,  mu- 
nicipal officials,  postmasters,  men  who  are  in  constant 
touch  with  the  people,  and  who  can  render  valuable 
services  to  insurance  by  awakening  the  desire  to  look 
out  for  the  future  needs  to  a  degree  never  before 
aroused."  In  a  word,  all  public  officials  are  to  be  ulti- 
mately transformed  into  insurance  agents. 

But,  despite  all  the  enthusiasm  that  these  amateur 
brokers  may  be  able  to  arouse,  such  cooperation  will 
not  be  effective  unless  commissions  are  paid.  And 
then  what  becomes  of  the  all-important  excuse  for 
the  substitution  of  a  government  monopoly  for  pri- 
vate enterprise,  viz. — service  rendered  for  the  sake 
of  the  cause  and  not  for  gain? 

Now  the  average  agent  works  for  the  sake  of  gain  ; 
and  the  biggest  cost  item  of  insurance  companies  is 
the  comhiissions  of  these  same  agents;  even  the  gov- 
ernment monopoly  itself  has  preserved  them.  In  the 
case  of  sixteen  French  companies,  maintaining  fixed 
premiums,  these  expenses  amounted,  in  1911,  to  20,- 
912,800  francs,  to  which  sum  must  be  added  16,172,- 
000  francs  of  general  expenses  and  1.202,746  francs 
in  gratuities  and  bonuses.* 

What  will  be  the  insurance  rates  under  public  oper- 
ation?   If  the  state  wishes  to  use  persuasion,  instead 
^Économiste  Français,  July  27,   1912,  reproducing  the  annual 
table  of  the  Moniteur  des  Assurances. 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

of  force,  it  ought  to  make  its  rates  as  easy  as  possible 
for  the  policyholders,  but  the  profit  to  the  state  will, 
of  course,  be  just  so  much  less. 

I  have  not  at  hand  the  profits  of  the  life  insurance 
companies  in  Italy,  for  191 1,  but  in  that  year  the  divi- 
dends of  the  sixteen  French  companies  just  mentioned 
reached  the  sum  of  15,161,331  francs.  Great  as  has 
been  the  economic  development  of  Italy  no  one  will 
pretend  that  its  economic  prosperity  equals  that  of 
France.  However,  if  the  Italian  monopoly  is  as  effi- 
ciently administered  as  are  the  French  insurance  com- 
panies, and,  if  it  has  as  capable  agents,  it  might  per- 
haps be  able  to  realize  half  or  two-thirds  of  the  indus- 
trial profits  of  the  French  companies,  in  which  case  it 
would  yield  to  the  Italian  government  from  3,000,000 
to  6,000,000  lire  annually. 

Very  striking  in  this  connection  is  the  status  of  the 
old  age  pension  system  in  France — a  national  under- 
taking. From  185 1  to  1889  the  amount  of  first  pay- 
ments was  816,323  francs,  or,  in  39  years,  20,931 
francs  a  year.  The  laws  of  July  20,  1886,  and  April  9, 
1898,  increased  the  activity  of  the  fund,  but,  even  so, 
its  usefulness  has  been  mainly  restricted  to  associa- 
tions. In  19 10  the  number  of  their  payments  approxi- 
mated 5,305,447,  amounting  to  79,982,892  francs, 
while  the  number  of  individual  payments  was  only 
82,780,  aggregating  9,900,365  francs.  In  1909  the 
private  accident  insurance  companies  had  4,856,000,- 
000  francs  on  insurance  policies,  while  the  National 
Insurance  Fund  had  insured  for  only  77,494,000 
francs,  a  proportion  of  less  than  2  per  cent. 

246 


DELUSIONS   OF    PROFIT 

The  mathematical  reserves  and  the  other  funds 
available  are  to  be  employed  as  follows  by  the  Italian 
National  Insurance  Fund  : 

1.  In  the  purchase  of  bonds  of  the  consolidated 
public  debt  of  the  kingdom  of  Italy. 

2.  In  the  purchase  of  other  bonds  issued  or  guar- 
anteed by  the  Italian  government. 

3.  In  the  purchase  of  securities  issued  by  title  guar- 
antee trust  companies. 

4.  In  advances  upon  the  guaranty  of  the  bonds 
just  described  by  numbers  i.  2,  and  3,  of  the  present 
Article. 

5.  In  the  purchase,  by  means  of  cession  and  subro- 
gation, of  annual  debts  of  the  Italian  government. 

6.  In  loans  upon  national  insurance  policies  within 
the  limits  of  the  value  of  the  policy. 

7.  In  the  purchase  of  real  estate  situated  in  the 
Kingdom,  on  condition  that  these  properties  be  free 
from  mortgages  and  all  other  charges  and  in  a  pro- 
portion not  to  exceed  a  tenth  of  the  reserve. 

8.  In  subsidies  to  employees  and  workmen  of  the 
state,  provinces,  and  municipalities  ;  public  and  phi- 
lanthropic institutions;  pawnshops;  chambers  of  com- 
merce and  banks,  on  a  guaranty  of  the  cession  of  a 
share  in  the  profits  due  them. 

Where  is  the  state  which  can  guarantee  that  its 
income  will  constitute  a  perfectly  sound  investment 
when  English  consols  are  at  74  shillings?  The 
Italian  revenue  is  susceptible  to  sudden  changes  which 
make  predictions  difficult  for  both  the  monopoly  and 
its  policyholders.     The  government  will  have  to  as- 

247 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

sume  all  responsibilities  and  the  investments  directed 
by  clause  No.  8  will  be  very  difficult  of  execution. 

The  Fund  enjoys  privileges  which  assure  it  of  cer- 
tain resources,  but  only  to  the  detriment  of  other  gov- 
ernment undertakings.  For  example,  it  has  free  use 
of  the  postal  and  telegraph  services.  Both  these  serv- 
ices thus  lose  revenues  which  private  insurance  compa- 
nies would  have  yielded  them. 

Finally,  the  profits  of  the  monopoly  are  exempt 
from  the  income  tax,  which  private  companies  would 
have  to  pay. 

The  officials  who  are  to  act  as  insurance  agents 
have  their  own  duties  to  fulfill.  Unable  to  devote 
more  than  their  idle  moments  to  the  new  task,  they 
will  always  be  working  at  a  disadvantage.  Nor  is 
every  man  fitted  by  nature  for  the  rôle  of  insurance 
agent.  Not  only  is  the  taste  for  it  lacking,  but  skill, 
tact,  and  technical  ability  will  be  wanting. 

Possibly  the  officials  will  gather  some  personal  bene- 
fit by  reason  of  the  added  authority  which  their  new 
position  gives  them.  They  may,  perhaps,  be  able  to 
obtain  by  main  force  policies  which  ordinary  agents 
are  not  able  to  get.  But,  successful  insurance  is  not 
only  a  question  of  affixing  a  signature,  nor  even  of 
the  first  payment  on  a  policy.  A  policyholder  must 
persevere.  What  if  he  slips  back  after  the  agent  has 
received  his  commission? 

This  is  a  risk  which  all  insurance  companies  know. 
The  state  will  also  discover  it,  but  it  will  find  itself 
placed  in  a  still  more  difficult  position  by  the  necessity 
of  refusing  contracts  brought  in  by  its  officials  and 
employees.      It  will  be    forced   to   choose   its   policy- 

248 


DELUSIONS   OF    PROFIT  •  .  , 

holders,  to  accept  some  and  refuse  others,  and  in- 
surance exiles,  branded  with  a  sort  of  discredit,  if  not 
infamy,  will  thus  be  created. 

Italy  and  Uruguay  are  the  only  countries  which 
have  experimented  with  national  life  insurance.  The 
independence  of  the  National  Insurance  Fund  of  Uru- 
guay is  greater  than  that  of  Italy.  It  was  established 
by  a  law  of  December  26,  1911,  and  is,  therefore,  too 
recent  to  furnish  any  authoritative  data. 

Systems  of  state  fire  insurance  are  found  in  other 
countries.  In  Germany  public  fire  insurance  associa- 
tions "have  always  been  energetically  supported  by 
the  government."  ^  Landed  proprietors  are  compelled 
to  insure  their  property  with  public  offices  in  Bavaria, 
Wiirttemburg,  and  the  grand  duchies  Baden  and 
Hesse.  Private  insurance  enterprises  are  limited  to 
personal  property  and  to  risks  on  real  property  not  in- 
sured by  the  state. 

Nevertheless,  it  has  not  been  found  either  possible 
or  advisable  to  oust  the  private  companies,  as  is  proved 
by  the  following  table,  giving  the  insurance  situation 
in  Germany  in  1906: 

52  Public         16  Benefit  32 

F.re  Insurance     Societies  ^om- 

Associations  panies 

Receipts  :  Millions  of  Marks 

Assessments,  or  gross  premiums         78,343         36,094       190,347 

Miscel.  returns   73.66o         33.935       107,134 

Expenses  : 

Indemnities  and  taxes 51,708         10,294         90,291 

Miscellaneous  expenses  : 

Contributions  to  fire  companies 
and  amortization 16,094  5.i  14         34.389 

^Annales  d£  la  Regie  Directe,  April,  191 1. 

249 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  Municipal  Fire  Insurance  Fund  of  Rostock  has 
reinsured  with  a  private  company  the  total  capital  in- 
sured by  itself.  It  is,  therefore,  nothing  more  than 
an  agency  for  the  collection  of  premiums  and  the  dis- 
tribution of  indemnities.^ 

The  canton  of  Waad  has  insured  both  real  and  per- 
sonal property  since  1849;  insurance  is  compulsory. 
Personal  property  insurance  is  unknown  in  any  other 
canton,^  but  national  insurance  of  personal  property 
is  about  to  be  established  in  Switzerland. 

In  the  insurance  system  in  operation  in  the  canton 
of  Waad  the  cost  of  administration  was  13  francs  48 
in  1907;  in  Glarus,  from  1895  to  1905,  9  francs  34 
per  100,  and  in  1907,  13  francs  48. 

The  state  must  accept  all  risks,  the  bad  with  the 
good. 

December  20,  1907,  the  French  minister  of  the  In- 
terior announced  that  he  would  not  oppose  the  crea- 
tion of  a  departmental  fire  insurance  fund  in  the  dis- 
trict of  the  Côte-d'Or.  The  fund  was  therefore  es- 
tablished, January  i,  with  an  annual  subsidy  of  15,000 
francs  from  the  General  Council,  and  with  a  central 
bureau  installed  in  the  prefecture. 

A  clause  limited  the  insurance  premium  to  10 
francs;  but  this  clause,  considered  "as  a  slight  anti- 
collectivist  barrier,"  has  disappeared.  The  advan- 
tages extolled  are:  The  annual  policy;  the  oppor- 
tunity of  insuring  one's  self  at  the  town  hall  of  one's 
own  town;  "following  a  disaster  an  appraisal  of  dam- 

^  Annales  de  la  Regie  directe,  April,  1911,  page  169. 
'Ibid.,  December,  1909,  page  47. 

250 


DELUSIONS    OF    PROFIT 

ages  devoid  of  any  spirit  of  quibbling  or  barter."  The 
policyholder  is  always  free  to  withdraw  or  to  modify 
his  policy. 

No  bargaining;  ample  satisfaction!  Under  certain 
circumstances  insurance  may  well  become  an  oppor- 
tunity for  profit  in  a  sense  never  intended. 

Here  are  evidently  advantages  beyond  those  offered 
by  private  companies — at  the  expense  of  the  taxpay- 
ers in  the  first  place.  Ten  years  hence  the  actual  re- 
sults may  be  known. 

Two  French  deputies,  MM.  Cartier  and  Coudère, 
have  each  introduced  a  bill,  establishing  a  state  mo- 
nopoly on  every  species  of  insurance.  Both  have 
been  reported  favorably  by  Brisson. 

In  the  case  of  the  fifty-four  most  important  French 
insurance  companies,  with  fixed  premiums,  life,  fire, 
etc.,  the  profits  are  estimated  at  31,000,000  francs. 
After  deducting  reserve  and  sinking  funds,  a  net  profit 
of  25,000,000  or  26,000,000  francs. remains.  Let  us 
suppose  that,  with  the  help  of  first-class  investments, 
the  state  can  obtain  a  net  amount  greater  than  this 
profit  and  equal  to  the  total  dividends  distributed  by 
the  companies,  or,  in  other  words,  35,000,000  francs. 

Unless  the  state  confiscates  it  will  have  to  pay  the 
companies  between  1,000,000,000  and  1,500,000,- 
000  francs,  in  order  to  buy  them  out,  which  sum, 
at  3  per  cent.,  represents  an  annual  interest  of  from 
30,000,000  to  45,000,000  francs.  Then  add  to  this 
amount  a  sinking  fund  of  about  10,000,000  francs. 
We  have  thus  an  asset  of  35,000,000  francs,  with  lia- 
bilities of  40,000,000  to  55,000,000  francs.     The  bal- 

251 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

ance  of  this  operation  is  a  deficit  of  5,000,000  to  20,- 
000,000  francs. 

But  how  will  it  be  if  the  state  system  operate  with 
less  favorable  results  than  private  companies — an  al- 
most certain  contingency?  The  losses  might  well 
reach  30,000,000  or  even  40,000,000  francs.^ 

^  De  Monopole  d'État.  Rapport  au  Congres  de  Chambre  de 
Commerce,  by  M.  de  Lasteyrie. 


iJ5« 


CHAPTER  XXIV 

THE    FISCAL    MINES    OF    THE    SAAR    DISTRICT 
The    Prussian    Government    Mines. — Decrease    of    Profits. 

Not  only  railways,  but  all  other  state  undertakings 
are  exposed  to  commercial  risks.  Their  profits  do  not 
always  increase,  as  is  proved  by  the  fiscal  mines  be- 
longing to  the  Prussian  government.  The  following 
tables  show  the  decease  in  the  aggregate  in  the  ac- 
counted profits  of  Prussian  mining  undertakings: 

Reported  Number  of  Profit  per 

Years                         Profits  Workmen  Capita 

Marks  Marks       pf. 

1890  24,464,000  36,47s  433    19 

1891  17,112,000  57,939  395    36 

1892  13,829,000  57,307  241    33 

1893  15,084,000  55,322  272   66 

1894  15,024,000  57,009  263    55 

1905  30,651,000  84,244  363  84 

1906  27,444,000  89,130  307  92 

1907  14,622,000  92,776  157  61 

1908  16,136,000  96,845  166  62 

1909  17,000,000  101,941  166  yd 

Average 

1890-1894  . .  17,102,600  52,810  321  22 

1895- 1899  •  •  27,302,552  64,375  424  05 

1 900- 1 904  . .  34,846,403  77,462  449  85 

1905-1909  ..  21,170,600  92,987  232  55 

The  enormous  falling  ofif  after  1905  is  readily  seen; 
the  decrease  per  workman  is  48  per  cent.,  compared 
with  the  previous  period. 

253 


WHERE   AND   WHY    PTTBLIC   OWNERSHIP    HAS    FAILED 


A  similar  decrease  is  to  be  noticed  in  all  the  mining 
enterprises  except  that  of  salt. 

1890   1906   1907   1908   1909 

Thousands  of   Marks 

Mining        undertakings 

except  salt    20,415      20,987  8,058      10,921      11,299 

Metallurgical    works    .  .     1,099       4.245  1,982  882  31 

Salt  works    1,749  668  3,210       3,930       5,031 

Thermal   establishments         34.7         35.1         34.0  5.5       iii.l 

Total    23,297.725,935.113,284.    15,738.516,472.1 

The  decrease  in  the  profits  in  government  mining 
ventures  is  due,  above  all,  to  the  coal  mines  of  the 
Saar  district. 

The    following  triennial   tables    show   the   changes 
which  have  taken  place  since  1900  in  the  cost  and  the 
selling  price  per  ton  of  the  coal  from  these  mines: 
Cost  per  ton  in  marks 
Charges 
Years  Salary        ^^^^P"    gf-^^e^      ^axes         Total" 

Workmen 

1900  4.74     1.64    0.44    0.12     1.43 

1903   4.89     1.57    0.52    0.18     1.82 

1906   5.26     1.74    0.55     0.16     1.78 

1909   5.52     2. II     0.74     0.19     2.13 

Selling  price  and  profits 

Price  Expense         ^  __,  . 

Yeani  Actually  for  New  p^^ir^  Total  • 

Realized        Installation         ^'^°^^ 

1900 10.68  0.14  2.76  2.90 

1903 10.00  0.22  1.48  1.70 

1906 10.40  0.28  1.36  1.64 

1909 1103  0.58  0.59  1. 17 

The  net  cost  has  increased  48  per  cent,  and  the 
profits  have  decreased  59  per  cent.     The  budget  es- 

'  Translator's  Note — I  have  been  unable  to  verify  these  fig- 
ures, which  appear  to  be  incorrect. 

254 


THE    FISCAL    MINES    OF    THE    SAAR    DISTRICT 

tablished  by  the  Prussian  Department  of  Mines,  Foun- 
dries, and  Salt  Works,  has  been  worked  out  on  new 
principles,  such  as  a  distinction  between  the  costs  of 
administration  and  the  expenses  of  operation,  reserves 
for  new  installations,  current  expenses,  etc.  Miscel- 
laneous expenses,  figuring  heretofore  in  the  general 
budget  of  the  Prussian  government,  although  really 
concerning  financial  operations,  have  been  carried 
over  to  the  budget  of  the  Department  of  Mines,  Foun- 
dries, and  Salt  Works.  Hence,  there  is  a  decrease  of 
8,859,177  marks  in  the  preliminary  estimate  of  the 
net  profit  as  compared  with  the  budget  of  1911.^ 

The  gross  profit  upon  Prussian  fiscal  mining  enter- 
prises was  estimated  for  1912  at  18,215,000  francs; 
the  net  profit  at  5,938,000  francs.  It  should  be  ex- 
plained, however,  that  a  certain  amount  had  been  pre- 
viously deducted  for  the  Academy  of  Mines  at  Berlin, 
as  well  as  for  the  Geological  Institute. 

*  Circulaire  du  Comité  Houillères,  February  10,  1912, 


255 


CHAPTER  XXV 

PUBLIC  VERSUS  PRIVATE  ENTERPRISE 

1.  A   Priori   Reasoning  Contradicted  by   Facts. 

2.  The    National    Printing    Office    and    the    Paul    Dupont 

Printing  Company. 

3.  Naval  Construction. 

4.  Two    Piers. — The    Telephone    Company    and   the    Post- 

office. 

5.  Indemnities   for  Losses   Upon   State  and   Private  Rail- 

way Systems. 

6.  Public  and  Private  Electrical  Plants  in  Germany, 

7.  Other  Results  in   Germany. 

8.  The  Municipal  Public  Service  of  Paris. — M.  Dausset. — 

Superiority    of    Private    Enterprises. — Benjamin    Wel- 
ton. — Psychology  of  the  Middleman. 

9.  Reaction  Against  State  Undertakings  in  New  Zealand. 
10.  Letter    of   a    Citizen    of    Manchester. — Conduct    of    In- 
dustry and  Its  Regulation. 

1.  The  partisans  of  socializing  and  of  municipal- 
izing all  sorts  of  public  services  never  tire  of  the  old 
refrain  that  state  and  municipalities  manage  enter- 
prises for  the  good  of  the  service,  and  not  for  profit, 
and  that,  therefore,  we  ought  to  get  them  at  a  lower 
cost.  We  ought  to.  Here  we  have  a  priori  reason- 
ing. The  trouble  is  that  such  reasoning  is  constantly 
contradicted  by  the  facts. 

2.  Some  years  ago  the  net  profit  on  the  National 
Printing    Office    of    France    apparently    represented 

256 


PUBLIC  versus  private  enterprise 

nearly  normal  interest  on  the  capital  invested.  How- 
ever, an  investigation  gave  M.  Colson  an  opportunity 
of  declaring  that  this  result  was  only  obtained  by  an 
"exorbitant"  increase  in  the  prices  demanded.  In 
proof  of  his  statement  M.  Colson  gave  the  following 
significant  example  : 

The  Paul  Dupont  Company  had  arranged  to  fur- 
nish the  Navy  with  forms  and  designs  at  the  same  cost 
as  the  National  Printing  Office,  less  the  expenses  of 
composition,  correction  and  holding  of  forms.  The 
National  Printing  Office  maintained  that  the  Dupont 
Company  was  working  at  a  loss  in  order  to  ruin  the 
credit  of  the  government  establishment.  An  inspec- 
tor of  finances  (inspecteur  des  finances)  declared,  offi- 
cially, that  this  assertion  was  false,  and  that  the  Du- 
pont Company  both  could  and  did  make  a  profit  on 
the  business,  despite  the  reduction  granted  to  the 
Navy.^ 

3.  On  December  13,  1911,  the  Assistant  Secretary 
of  the  United  States  Navy,  Mr.  Watt,  told  a  com- 
mittee of  the  House  of  Representatives  that  the  bat- 
tleship Florida,  constructed  by  the  government,  cost 
per  ton  (hull  and  engines  only),  1,374  francs  50 
($265.28)  ;  while  the  Utah,  constructed  by  a  private 
company,  cost  904  francs  ($174.47).  In  1910  Con- 
gress authorized  the  construction  of  two  battleships, 
the  cost  of  which  it  limited  to  30,000,000  francs  ($5,- 
700,000).  The  private  company  did  its  work  accord- 
ing to  contract,  at  a  cost  of  500,000  francs  less  than 
the  original  estimates;  the  navy  yard  required  addi- 

*  Communication  à  l'Académie  des  Sciences  Morales  et  Poli- 
tiques, August,  1912. 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tional  appropriations  until  the  actual  cost  reached  over 
35,000,000  francs   ($6,650,000). 

I  read  in  the  Army  and  Navy  Journal,  January  28, 
1911  : 

"The  Committee  on  Naval  Affairs  recommends,  also, 
that  Congress  give  to  Secretary  Meyer  the  power  to  con- 
struct in  a  private  shipyard  the  battleship  New  York,  the 
building  of  which  was  authorized  during  the  last  session  ; 
the  secretary  having  shown  that  it  will  cost  the  govern- 
ment at  least  eight  millions  and  a  half  more  to  construct 
the  Nezu  York  in  the  Brooklyn  Navy  Yard  by  reason  of 
the  eight-hour  law." 

It  is  only  in  France  that  the  Navy  constructs  more 
ships  than  it  hands  over  to  private  companies  for  con- 
struction, as  the  following  table  shows  (1911)  : 

Deep  Ska  Vessels  Torpedo  Boats 

COUNTRIES  c5^pan?es         Navy  Yard  Comp^L      Navy  Yard 

France, 

Tons     73,400  83,634  15,944  11,358 

Proportion  per 

cent 47  S3  58  42 

England, 

Tons   388,100  231,830  92,480  2,400 

Proportion  per 

cent 63  37  97  3 

Germany, 

Tons   320,562  75,154  46,200 

Proportion  per 

cent 81  19  100 

United  States, 

Tons   184,075  48,825  27,200 

Proportion  per 

cent 79  21  100 

4.  In  the  cities  of  Portsmouth  and  Southsea  there 
are  two  piers  :    The  one  is  private  property,  the  other 

258 


PUBLIC  z/ersîis  private  enterprise 

the  property  of  the  city.     The  first  is  a  success;  the 
second  a  "white  elephant."  ^ 

Faithful  Begg,  one  of  the  best-known  authorities 
on  business  conditions  in  England,  declared  before  the 
London  Chamber  of  Commerce,  on  the  i8th  day  of 
May,  1911  :  "The  National  Telephone  Company  op- 
erates on  58  per  cent,  of  its  gross  revenue,  while  the 
Postoffice  operates  on  74  per  cent.  The  Postoffice 
earns  3.5  per  cent,  on  the  capital  invested,  and  the 
National  Telephone  Company  is  earning  8.9  per  cent." 

5.  On  the  Western  (state)  railway  of  France,  from 
1904  to  1908,  claims  for  loss,  damage,  and  delay 
amounted  to  1,566  francs  per  100,000  francs  of  gross 
receipts.  From  1909  to  19 11  this  proportion  reached 
3,043  francs.  On  the  old  state  system  the  proportion 
was  1,426.  Since  1909  this  sum  has  increased  to 
2,055  francs,  which  proves  that  the  Department  of 
State  Railways,  while  extending  its  lines,  has  not  im- 
proved them.  On  the  Est,  Midi,  Nord,  and  Paris- 
Lyon-Mediterranée — all  privately  owned  lines — the 
average  is  1,175  francs.  Thus  the  claims  on  the 
Western  are  157  per  cent,  higher,  and  on  the  two 
other  state  systems  75  per  cent,  higher  than  on  the 
private  lines. 

I  might  add  that  the  Western  has  fallen  back  on  the 
plea  of  "circumstances  over  which  we  have  no  con- 
trol," floods,  strikes,  etc.,  a  subterfuge  to  which  the 
private  companies  have  not  found  it  necessary  to  have 
recourse. 

*  Truth,  April  26,  191 1. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

6.  A  German  engineer,  Wilhelm  Majerczik,  has 
published  a  comparative  study  of  the  results  accom- 
plished respectively  by  municipal  and  private  electrical 
enterprises  in  Germany. 

We  borrow  the  following  facts  from  the  analysis 
of  his  study  published  in  the  Revue  Économique  Inter- 
nationale, of  July  15,  1912.  The  figures  were  taken 
from  the  latest  available  statistics.^ 

In  his  survey  Herr  Majerczik  has  passed  over  the 
Berlin  and  Hamburg  plants,  operated  by  private  com- 
panies, as  their  prosperity  so  far  exceeds  the  average 
that  his  comparisons  would  have  been  unduly  affected 
by  them.  Moreover,  his  study  bears  only  upon  elec- 
trical plants  supplying  localities  with  a  population  of 
at  least  100,000  inhabitants.  These  installations  num- 
ber fifty-six,  and  are  subdivided  as  follows: 

Municipal  Private 

Plants  Plants 

Number   41  15 

Population  in  territory  supplied  9,571,000        3.363,000 

(The  information  given  relates  only  to  fourteen  of 
the  private  plants  in  question,  data  as  to  the  fifteenth 
not  being  attainable.) 

The  situation  of  the  private  plants  is  actually  less 
favorable  to  development  than  that  of  the  public 
plants.  Yet,  out  of  thirty-eight  municipal  undertak- 
ings, twenty  supply  only  a  single  locality.  The  extent 
of  territory  supplied  by  private  enterprises  is  double 
that  of  municipal  enterprises. 

'  Statistik  der  Vereinigung  der  Elektrisitdtsiverke  fiir  das 
Betriebjahr,  1909,  Dortmund,,  1910,  supplemented  bj'  the  Statistik 
der  Elektrizit'dtswcrke  in  Deutschland  nach  dent  Stand,  vom 
April  I,  IÇ10.     G.  Dettmar,  Berlin,  1910. 

260 


PUBLIC  versus  private  enterprise 


The  municipal  enterprises  are  the  older;  for,  in  the 
beginning,  such  undertakings  were  considered  the  spe- 
cial prerogative  of  local  governments. 


Average 

1.  Average  number  of 

inhabitants  in  re- 
gion supplied  per 
plant   234,000 

2.  Number  of  suburbs 

supplied  per  plant 

3.  Average    area    per 

plant    in    km.^.  . . 

4.  Average   age    (per 

plant  per  year) . . 


Municipal  Operation 
Number) 
of  Plants 


Private  Operation 
Number 


9.2 


62.4 


131 


41 


38 


30 


40 


Average 


240,000 


37-2 


148.6 


of  Plants 

14 
IS 

8 
IS 


The  superiority  of  the  equipment  of  private  enter- 
prises is  demonstrated  by  the  fact  that  the  average 
productive  capacity  of  municipal  plants  is  scarcely 
three-fourths  that  of  private  plants. 


Municipal  Operation 

Private  Operation 

s- 

Number  of  boilers 

Average 

Number 
of  Plants 

Average 

Number 
of  Plants 

per   plant    

ISS 

27 

13.6 

14 

6. 

Maximum  pressure 
kilogram   per   sq. 

cm 

II. 7 

37 

13.6 

14 

7. 

Heating        surface 

per  boiler   

226 

37 

266 

14 

8. 

Number    of   prime 

movers  per  plant 

8.2 

36 

9.6 

9 

9 

Maximum      power 

per   machine    kw. 

350 

36 

988 

9 

10 

.  Average  total  ca- 
pacity of  accumu- 

lators kw 

8,000 

34 

10,500 

14 

II 

.  Distribution  : 

Entire    system. 

489 

41 

517 

11 

Overhead    .... 

57 

41 

281 

II 

Underground.  . 

432 
261 

41 

236 

II 

WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 


The  fewer  boilers  of  the  private  plants  are  of  a 
more  economical  type  than  those  of  public  plants,  and 
the  prime  movers  are  more  powerful  (Nos.  5  to  10). 

In  comparing  light  and  power  circuits  we  have  55.3 
kw.  per  1,000  inhabitants  for  33  public  plants,  and  79 
kw.  for  II  private  plants.  If  traction  be  added  we 
have  65.9  kw.  for  the  first,  80.9  kw.  for  the  second. 
Municipal  plants  furnish  power  for  traction  to  a 
greater  extent  than  private  plants,  because  the  great 

OPERATING  RESULTS 

Municipal  Plants  Private  Plants 

A'».,.^..  Number  *„„.„.  Number 

Average         of  Plants         Average         of  p,ant« 

18.  Energy    produced 

per     heat     unit, 

v^fh 0.086        34  0.103         II 

19.  Energy    produced 

in  per  cent,  of 
the  total  capa- 
city, multiplied 
by  8,760  hours, 
percent 17.0  35  20.0  II 

20.  Average    time    of 

use  of  total 
power  of  plant, 
hours    1,317.10  36  1,480.0  10 

21.  Annual  loss  of  en- 

ergy in  per  cent, 
of  the  energy 
produced    20.3  35  22.9  10 

22.  Energy    furnished 

per  inhabitant    .  9.1  31  12.4  8 

23.  Private       lighting 

kwh 0.81  36  1.39  9 

24.  Public       lighting, 

kwh 14-2  21  23.9  8 

25.  Power,  kwh 27.4  38  36.2  9 

26.  Traction,  kwh.    ..  16.4  24  9.7  3 

27.  Total,  kwh,  37°  38  39-5  9 

262 


PUBLIC  versus  private  enterprise 

municipal  undertakings  control  all  the  important  tram- 
way systems. 

Private  enterprises  are  operated  more  economically 
than   municipal   undertakings. 

They  can  produce  greater  power  per  heat  unit  be- 
cause they  employ  boilers  and  engines  of  greater  unit 
capacity  and  the  agent  of  supply  is  better;  that  is  to 
say,  with  a  given  apparatus,  they  are  called  upon  to 
produce  more.  Their  losses  are  greater,  because  they 
operate  as  central  stations  at  long  distances.  Private 
central  stations  furnish  30  per  cent,  more  energy  for 
private  lighting,  and  60  per  cent,  more  for  public 
lighting  per  inhabitant.  They  also  sell  much  more 
energy  for  power. 

The  financial  results  are  as  follows: 

The  installation  costs,  on  the  average,  are  1,160 
marks  per  kw.,  for  municipal  plants,  and  1,240 
marks  for  private  plants.  The  private  plants  operat- 
ing at  long  distances  have  a  more  expensive  system 
of  high  tension  lines  and  transforming  stations. 
Nevertheless,  they  can  furnish  i  kwh.  28  per  mark  of 
cost  of  installation,  while  municipal  plants  can  only 
furnish  i  kwh.  12.  They  also  content  themselves 
with  lower  rates. 

The  following  table  gives  the  difference  in  rates 
between  municipal  and  private  plants  : 

RECEIPTS  per  kwh  SUPPLIED 

Municipal  Plants    Private  Plants 
Pfennigs  Pfennigs 

Light    36.8  31.6 

Power    15.7  12.5 

Traction 9.95  9.13 

263 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

For  light  the  average  rate  charged  by  private  com- 
panies is  14  per  cent,  less  than  that  of  municipal 
plants  ;  for  power,  20  per  cent.  Even  for  traction  there 
is  a  difference  of  about  8.3  per  cent,  in  favor  of 
private  plants. 

The  superiority  of  private  plants  is  shown  above 
all  in  the  matter  of  expenditures. 

EXPENSES  PER  KWH  SUPPLIED 

Municipal  Operation     Private  Operation 

Pfennigs  Pfennigs 

Fuel    3-69  2.98 

Oil    0.13  0.09 

Wages  and  salaries  ...                       2.04  2.15 

Maintenance     0.97  0.96 

Miscellaneous    1.17  1.74 

Total    7-90  7-8o 

Gross     difference,     per 

cent 13.2  9.5 

The  expenses  for  fuel,  oil  and  maintenance  are  less 
for  private  plants,  because  these  plants  are  better 
equipped  and  better  managed.  Yet  the  labor  expenses 
are  higher.  The  miscellaneous  expenses  are  also 
higher,  because  private  plants  are  subject  to  local  taxa- 
tion from  which  municipal  plants  are  exempt.  If 
taxes  were  taken  into  consideration  the  gross  differ- 
ence between  expenditures  and  receipts,  which  is  13.2 
per  cent,  for  municipal  and  9.5  per  cent,  for  private 
plants,  would  be  materially  modified.  The  differences 
would  be  reversed  if  private  plants  did  not  have  lower 
rates. 

H.  Marchand,  in  a  summary  of  the  work  of  Herr 
Alajerczik,  concludes  that,  from  every  point  of  view, 
public    ownership   and    operation    of    the   generating 

264 


PUBLIC  versus  private  enterprise 

forces  of  electricity  can  only  be  carried  on  at  a  disad- 
vantage. 

7.  In  the  Journal  des  Débats  and  in  the  Économiste 
Français  Arthur  Raffalovich  has  asserted  that  public 
ownership  and  operation  in  Germany  has  been  by  no 
means  so  successful  as  enthusiastic  partisans  of  gov- 
ernment ownership  in  France  and  elsewhere  have  tried 
to  make  us  believe.  Several  municipal  enterprises  have 
recently  been  licjuidated  and  a  number  of  electrical 
plants  and  tramways  sold  outright. 

Recent  reports  of  the  Burgomasters  of  Strassburg 
and  Rheydt  affirm  that  the  operation  of  great  indus- 
tries by  municipal  authority  is  encountering  numerous 
difficulties;  that  it  is  lacking  in  flexibility;  that  it  is 
exceedingly  hard  to  find  competent  managers  ;  that  the 
influences  brought  to  bear  are  frequently  far  from  dis- 
interested, and  often  conflicting;  that  the  majority  of 
the  municipal  councillors  have  no  comprehension  of 
industrial  or  commercial  business  ;  that  real  profits 
are  rare.  In  1908,  out  of  36  municipal  tramways, 
only  9  were  operating  without  loss,  while  1 1  were  re- 
quiring rather  heavy  appropriations. 

The  burgomasters  charge  that  cities  which  are  sup- 
plying directly  their  own  gas,  electricity,  and  tram- 
ways are  being  delivered  over  without  let  or  hin- 
drance to  the  ringleaders  of  the  various  labor  associa- 
tions. 

In  Germany  to-day  there  is  a  very  marked  evolu- 
tion in  the  direction  of  private  management,  the  city 
retaining  the  ownership  of  the  enterprise,  but  leasing 
the   operation   to   a   corporation.      Cologne   has   con- 

265 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

tracted  with  a  private  company  to  supply  the  extra 
electricity  needed,  and  the  city  has  also  promised  not 
to  enlarge  its  electrical  plants. 

8.  In  his  report  on  the  municipal  budget  of  Paris, 
for  1912.  M.  Dausset  acknowledges  the  superiority 
of  private  enterprise  over  public  administration  in  the 
following  terms  : 

"It  may  as  well  be  confessed  that  a  special  mechanical 
equipment  or  a  skilled  staff  is  only  to  be  obtained  by 
applying  to  a  private  company." 

The  business  man  keeps  in  touch  with  the  latest  de- 
velopments and  spares  no  efforts  to  select  his  mar- 
kets under  the  best  possible  conditions.  Public  man- 
agement, "even  in  those  rare  cases  where  it  ventures 
to  take  the  initiative  and  point  out  to  the  council  the 
necessary  improvements  and  repairs,  is  obliged  to  wait 
several  months,  if  not  several  years,  to  obtain  the 
money  or  the  indispensable  authority." 

The  same  conditions  prevail  in  the  case  of  street 
cleaning.  The  City  of  Paris  is  unable,  with  its  limited 
annual  resources,  scarcely  sufficient  for  current  ex- 
penses, to  bring  about  a  rapid  renewal  of  out-of-date 
equipment.  The  contractor,  on  the  contrary,  has  at 
his  disposal  for  such  a  purpose  capital  that  he  can 
pay  off  at  his  leisure,  and  which  permits  him,  more- 
over, to  offer  attractive  terms.  Finally,  being  careful 
to  reduce  the  cost  of  maintenance  to  a  minimum,  the 
contractor  enters  only  after  careful  consideration  into 
initial  expenditures.  His  chief  reliance  is  in  a  first- 
class  equipment. 

266 


PUBLIC  versus  private  enterprise 

M.  Dausset  continues  : 

"The  contract  system  is  equally  well  suited  to  the  pav- 
ing and  asphalting  of  the  streets,  and  their  maintenance. 

"Here  again  everything  depends  upon  the  quality  of 
tiie  material  employed  and  on  the  process  and  the  care  in 
manufacture,  as  well  as  on  the  way  the  work  is  per- 
formed. Taking  into  account  the  importance  of  the 
streets  and  the  traffic  they  will  be  called  upon  to  bear, 
the  contractor  would  know  how  to  make  the  necessary 
distinctions  and  would  not  hesitate,  for  example,  to  in- 
crease by  a  centimeter  the  thickness  of  the  asphalt  bed 
demanded  by  the  specifications,  if  the  street  were  much 
frequented,  in  order  to  escape  expensive  repairs  in  the 
near  future,  and  to  lessen  thus  the  annual  cost  of  main- 
tenance, 

"In  the  same  way,  in  the  case  of  construction  and 
maintenance  of  cobbled  roads,  the  government,  ill 
equipped  and  lacking  the  flexibility  indispensable  for 
performing  such  work  rapidly  and  economically  by  profit- 
ing by  the  experience  of  each  day,  has  every  interest  in 
leaving  such  work  to  private  industry,  while  reserving 
for  itself  the  equally  important  and  delicate  task  of  con- 
trol." 

In  his  investigation  of  the  efficiency  of  municipal 
work  Benjamin  Welton  also  shows  the  superiority  of 
the  business  man  over  the  public  ofificial.^ 

"The  problem  that  he  has  to  solve  is  simple,  and  he 
considers  it  as  a  whole.  He  is  not  hampered  by  all  sorts 
of  restrictions.  He  seeks  the  most  competent  men,  dis- 
charges the  incapable,  and  is  able  to  give  bonuses  for 

^ EfUciency  in  City  Government,  page  ill. 
267 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    ]IAS    FAILED 

increase  of  production.  His  rule  is  to  compare  expendi- 
tures and  results.  He  does  not  hesitate  to  make  neces- 
sary expenses  which  will  be  economy  in  the  long  run. 
He  organizes  his  units  in  such  a  manner  that  they  give 
the  maximum  income.  Above  all,  it  is  impossible  to 
falsify  his  reports  because  they  are  verified  by  the  party 
with  whom  he  is  under  contract." 

9.  The  Socialists  would  have  us  believe  that  from 
the  moment  a  government  or  a  municipality  engages 
in  the  nationalization  or  the  municipalization  of  public 
utilities  it  perseveres  in  the  undertaking. 

Yet  we  have  seen  that  such  undertakings  have  been 
abandoned  in  Great  Britain  and  Germany,  while,  as 
for  New  Zealand,  Mr.  Scholefield,  in  1909,  and 
Messrs.  Le  Rossignol  and  Stewart,  in  19 12,  are 
united  in  the  conviction  that  : 

"Of  late  years  the  whole  tendency  has  been  to  leave 
more  and  more  to  private  enterprise.  It  is  a  swing  of 
the  pendulum.  Ten  years  ago  the  government  would 
not  have  dared  to  suggest  allowing  private  companies  to 
develop  the  great  assets  latent  in  the  energy  of  the  rivers 
of  New  Zealand.  To-day  it  is  the  avowed  poHcy  of  the 
state  to  encourage  private  enterprise  in  this  direction. 
It  is  highly  improbable  now  that  New  Zealand  will  make 
any  further  pronounced  advance  toward  State  Socialism 
until  a  new  temper  succeeds  to  the  present  mood  of  con- 
servative  Liberalism." 

The  New  Zealanders  are  not  theorists,  but  a  certain 
number  are  sufficiently  shrewd  to  perceive  that,  when 
a  loss  is  resulting  from  a  state  enterprise,  it  affects 
the  whole  nation.     In  other  words,  that  the  govern- 

268 


PUBLIC  versus  private  enterprise 

ment  in  pursuing  such  a  policy  is  forcing  some  indi- 
viduals to  help  to  bear  the  financial  burdens  of  others. 

lo.  J.  C.  B.  Perry,  in  a  letter  to  the  Manchester 
City  News,  of  March  4,  191 1,  said: 

"If  gas  were  being  furnished  by  a  private  company 
it  would  have  to  have  a  high  illuminating  power.  We 
cannot  force  the  gas  committee  to  give  it,  and  it  does  not 
give  it.  If  the  tramways  belonged  to  a  company  they 
would  not  be  permitted  to  monopolize  the  streets  in  the 
center  of  the  city  to  the  detriment  of  all  other  species  of 
transportation.  Our  market  committee  is  losing  on  its  re- 
frigerating plants,  while  a  competing  company  is  a  com- 
mercial success  and  is  giving  'cheap  food'." 

When  poHtical  or  administrative  bodies,  whether 
states  or  municipalities,  operate,  they  are  regulating 
themselves.  This  is  a  sufficient  reason  in  itself  for  the 
suppression  of  all  public  trading  operations,  because 
it  is  necessary  that  there  be  a  distinct  separation  be- 
tween the  forces  of  operation  and  regulation. 

Industrial  operation  is  inherently  adapted  to  private 
enterprise.  Industrial  control  is  the  corresponding 
function  of  states  and  municipalities. 


26g 


BOOK   III 
ADMINISTRATIVE   RESULTS 

CHAPTER    I 

ADMINISTRATIVE  RESULTS 

Friends  of  socialization  and  municipalization,  han- 
dicapped by  the  financial  results  of  the  various  forms 
of  government  ownership  publicly  advocated  by  them, 
have  recently  made  a  change  of  front.  All  right,  they 
say,  publicly  owned  utilities  do  not  bring  in  profits  ; 
but  to  compare  public  administration  with  private  is 
to  do  the  former  an  injustice.  Its  aim  is  not  profit 
but  service.  It  sacrifices  financial  results  to  adminis- 
trative results  in  the  interest  of  the  moral  and  material 
progress  of  the  nation. 

These  theorists,  in  regard  to  "administrative  re- 
sults," forget  that  nothing  is  free,  that  everything 
must  be  paid  for,  and  that  public  services  are  by  no 
means  the  cheapest. 

However,  looking  at  the  matter  from  their  stand- 
point, let  us  examine  the  administrative  results  of  di- 
rect operation  by  the  state  and  the  municipality  and 
see  in  how  far  their  statements  are  borne  out  by  the 
facts. 

271 


CHAPTER   II 

THE   SAFETY  OF  TRAVELERS  UPON  STATE  AND 
PRIVATE   RAILWAY   LINES 

The  Safety  of  Travelers  and  the  State  System. — The  Re- 
port of  Albert  Thomas. — Comparisons. — The  Minutes 
of  the  French  Senate. 

In  a  number  of  articles,  published  in  the  Annales 
de  la  Régie  Directe,  Edgard  Milhaud  has  tried  to 
prove  that  safety  is  absolute  upon  government  rail- 
way systems  and  precarious  in  the  extreme  upon  pri- 
vately managed  systems. 

The  budget  commission  of  1912  entrusted  to  Albert 
Thomas,  a  L'nited  Socialist,  the  compilation  of  a  re- 
port on  the  budget  of  public  utility  franchises.  He  de- 
clares himself  that  "his  report  is  completely  perme- 
ated by  Socialist  thought"  ;  and  he  winds  up  by  recom- 
mending the  purchase  of  those  French  railways  still 
in  private  hands. 

As  he  could  not  bolster  up  his  argument  with  the 
results  of  the  Western  railway,  since  a  number  of 
accidents  unfortunately  interfered  with  such  a  possi- 
bility, he  passes  it  over,  and  speaks  only  of  the  old 
state  system.  His  argument  is  not  lacking  in  courage, 
because  the  following  facts,  among  others  collected  by 
Charles  Macler  and  completely  contradicting  it,  had 
already  appeared  in  the  Journal  des  Économistes: 

272 


THE    SAFETY    OF    TRAVELERS 

"Basing  his  arguments  upon  the  statistical  studies  of 
Edgard  Milhaud,  M.  Thomas  maintains  the  bold  theory 
that  safety  is  assured  only  on  railways  operated  by  the 
state.  The  argument  of  MM.  Milhaud  and  Thomas  is 
rather  naive.  There  are  more  accidents  upon  the  rail- 
ways of  the  United  States  than  upon  those  of  the  Bel- 
gian line  ;  there  are  more  upon  the  English  company 
system  than  upon  that  of  the  Prussian  government  sys- 
tem; there  were  more  accidents  upon  the  Swiss  railways 
before  than  after  the  purchase;  consequently,  there  are 
more  accidents  in  France  upon  the  systems  operated  by 
private  companies  than  upon  the  state  system.  'However 
surprising  this  declaration  may  appear  to  many,'  says 
M.  Thomas,  'the  fact  is  scientifically  established.'  Sur- 
prising, in  fact,  especially  just  after  the  catastrophes  of 
Villepreux,  Courville,  Bernay,  Ponts-de-Cé,  Saujon, 
Montreuil-Bellay.  As  to  whether  the  theory  is  scien- 
tifically established,  let  us  see  : 

"In  the  first  place,  if  we  compare  the  railway  acci- 
dents upon  the  systems  operated  by  private  companies 
with  our  old  government  system  (we  pass  over  the 
Western  system,  as  M.  Thomas  has  done),  we  declare 
that,  according  to  the  statistics  of  the  ministry  of  Public 
Works,  the  total  average  number  of  passengers  killed 
and  injured  from  1905  to  1909  was  : 

Passengers  Killed  and  Injured 

a.  Per  million  carried    

b.  Per  million  passenger  kilometers 

c.  Per   million    train   kilometers.  . . . 

"In  whatever  manner  we  examine  the  statistics,  the 
average  number  of  victims  of  accidents  resulting  from 
traffic  upon  the  old  government  system,  the  so-called 
model  system,  is  noticeably  higher  than  upon  the  private 

27.3 


Government 
Systems 

i"  Private 
Systemi 

1.58 

0.79 

0.03 

0.02 

2.01 

1.46 

WHERE    AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

systems.  The  preceding-  period,  that  is  to  say,  1901-1905, 
gives  precisely  the  same  results.  If  we  consider  sep- 
arately the  numher  of  the  killed  and  injured,  the  results 
in  the  case  of  each  of  the  above  items  are  disadvantage- 
ous to  the  state. 

"When  we  pass  on  to  a  comparison  of  accidents  be- 
tween the  French  systems  as  privately  operated  and  the 
principal  foreign  government  systems,  we  discover  that 
the  victims  of  accidents  have  been  much  less  numerous 
upon  the  first  than  upon  the  second.  We  borrow  our 
figures  from  the  latest  statistics,  those  of  the  year  1909. 

"First,  let  us  take  Belgium.  Here  are  the  figures  pre- 
sented by  the  report  of  Belgian  railway  operations  com- 
pared with  the  statistics  of  the  Ministry  of  Public  Works 
in  France: 


Per  million   passen-jKilled    

gets  carried   injured 

Per   million    passen-^Killed    

ger  kilometers  ...^Injured 

"The  superiority  of  the  French  companies  is  incon- 
testably  shown. 

"Let  us  take  Germany.  The  following  figures  are 
taken  from  the  Annuaire  Statistique  pour  l'Empire  Alle- 
mand, published  by  the  Imperial  Statistical  Bureau  : 

n^ „„„  French 

Germany        Companies 

Per   million   passen-^Killed    0.08  o.oi 

gers  carried   ^Injured 0.38  0.46 

Per   million  passen-JKilled    0.003  0.0005 

ger  kilometers  ...^Injured 0.016  o.oi 

"The  advantage  is  again  on  the  side  of  the  French 
companies. 

274 


Belgian 
Government 

French 
Companies 

0.03 

O.OI 

2.67 

0.46 

0.0015 

0.0005 

0.12 

O.OI 

THE    SAFETY    OF    TRAVELERS 

"Let  US  take  Austria.  Here  are  the  figures  taken  from 
the  report  of  the  operation  of  the  Austrian  government 
railways,  published  by  the  Ministry  of  Railways  : 

Austria         CoX^I;^ 

Per   million  passen-JKilled    ....  o.oi 

gers  carried    injured 2.25  0.46 

Per  million    passen-^Killed    ....  0.0005 

ger  kilometers  ...^Injured 0.07  o.oi 

"Here,  again,  the  advantage  is  altogether  on  the  side 
of  the  French  companies,  in  so  far,  at  least,  as  the  num- 
ber of  injured  is  concerned. 

"Now  Hungary.  Here  are  the  figures  drawn  from  the 
statistics  of  Hungarian  railways,  published  by  the  min- 
istry of  Railroads  : 

Hungary  Com^Tan'ies 

Per  million   passen-^Killed    0.23  o.oi 

gers  carried   ^Injured i.oi  0.46 

Per   million   passen-^ Killed    0.007  0.0005 

ger  kilometers  ...^Injured 0.03  o.oi 

"Once  more  the  advantage  is  with  the  French  compa- 
nies. 

"Let  us  take  Switzerland.  The  figures  are  taken  from 
the  statistics  of  Swiss  railways,  published  by  the  Federal 
Postoffice  and  Railway  department  : 

Switzerland        French 

Companies 

Per   million   passen-^Killed    0.13  o.oi 

gers  carried   ^Injured 0.74  0.46 

Per   million   passen-JKilled    0.008  0.0005 

ger  kilometers  ...  injured 0.03  o.oi 

"In  all  cases  the  advantage  is  with  the  French  compa- 
nies. It  may  be  said  positively  that  the  safety  of  pas- 
sengers is  much  greater  upon  the  systems  of  the  French 

275 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

companies  than  upon  those  of  the  French,  Belgian, 
German,  Austrian,  Hungarian,  or  Swiss  state  lines.  This 
conclusion  is  again  borne  out  by  the  figures  regarding  ac- 
cidents of  all  kinds  per  loo  km.  operated.  While  the 
figure  is  3.81  for  the  French  private  lines,  it  is  5.9  for 
Germany,  10. i  for  Italy,  12.5  for  Austria,  and  50  for 
Switzerland. 

"Nor  is  this  all.  If  we  compare  the  statistics  of  acci- 
dents in  those  foreign  countries  where  public  and  private 
operation  exist  concurrently,  we  find  that  accidents  are 
more  numerous  upon  the  state-owned  systems. 

"In  Austria  and  in  Switzerland  the  accident  statistics 
of  private  lines  are  not  given  separately,  but  a  compari- 
son between  the  figure  for  accidents  upon  the  government 
systems  considered  alone  and  upon  the  whole  railway 
system  of  each  country  makes  clear  the  measure  in  which 
this  last  figure  is  influenced  by  results  on  private  lines. 
The  number  of  accidents  resulting  from  traffic  on  all  the 
lines  together  is  smaller  than  that  of  the  accidents  upon 
the  state  systems  alone,  which  proves  that  accidents  are 
much  less  numerous  upon  private  systems  than  upon 
government  lines.    Here  are  the  figures  : 

Per  Million  Passengers  Carried 

Austria  Switzerland 

Government        Ppripral        Federal  and 
Government  and  Railwav<:        Company 

Companies       Railways         RaUways 

Killed   0.13  o.ii 

Injured    2.25  i.q8  0.74  0.72 

Per  Million  Passenger  Kilometers 

Killed    ....  ....  0.008  0.009 

Injured     0.07  0.06  0.036  0.036 

"Finally,  let  us  take  the  statistics  of  the  victims  of 
accidents,  including  both  passengers  and  employees.  The 
question  of  the  safety  of  operation  is  well  worth  examin- 
ing from  this  point  of  view. 

276 


THE   SAFETY   OF   TRAVELERS 

''We  find  that  the  whole  number  of  killed  and  injured 
per  million  train  kilometers  is  4.49  on  the  French  pri- 
vately operated  systems,  as  against  15.3  on  the  Belgian 
government  system  ;  7.6  upon  the  Austrian  government 
system;  8.1  upon  the  Hungarian  government  system; 
40.1  upon  the  Swiss  railways  (23  upon  the  Swiss  compa- 
nies) ;  5.10  upon  the  German  railways;  and  32.4  upon 
the  Italian  railways. 

"After  having  seen  these  figures  our  readers  will  find 
the  contention  of  Albert  Thomas  still  more  surprising. 
In  all  the  European  countries  that  we  have  passed  in 
review,  safety  is  greater  upon  the  private  lines  than 
upon  those  of  the  government.  It  is  a  fact  established  by 
ofificial  statistics." 

On  August  4,  1907,  the  accident  on  the  Ponts-de-Cé 
took  place,  resulting  from  the  disregard  on  the  part 
of  the  government  of  my  order  of  1891  for  the  an- 
nual inspection  of  steel  bridges.  This  accident  caused 
the  death  of  30  passengers.  In  August,  19 10,  the 
accident  at  Saujon,  near  Bordeaux,  occurred,  causing 
the  death  of  4.0  passengers.  On  June  18,  1910,  came 
the  accident  at  Villepreux,  upon  the  Western  railway, 
when  18  deaths  were  reported;  and,  on  September  10, 
1910,  the  accident  at  Bernay,  when  there  were  also 
deaths.  February  14,  191 1,  occurred  the  accident  at 
Courville,  which  caused  the  destruction  of  an  entire 
family  and  ten  other  deaths. 

The  six  greatest  railway  accidents  that  France  has 
suffered  during  five  years  have  thus  all  occurred  on  the 
government  system  :  three  on  the  Western,  and  three 
on  the  old  government  system,  which  the  state  has 
operated  during  nearly  35  years,  and  which  has  only 

277 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

2.292  kilometers  (1,433  miles),  making  the  line  about 
fifth  in  size  of  the  important  systems  of  France. 

On  November  24,  191 1,  the  accident  at  Montreuil- 
Bellay  inspired  a  discussion  in  the  Senate,  which  re- 
sulted in  the  following  resolution  : 

"The  Senate  profifers  the  assurance  of  its  profound 
sympathy  to  the  victims  of  the  catastrophe  at  Montreuil- 
Bellay  and  its  congratulations  to  the  rescuers,  and,  after 
taking  cognizance  of  the  declarations  of  the  minister  of 
Public  Works  that  efforts  are  being  made  to  improve  the 
deplorable  condition  of  the  Western  line  and  expressing 
its  confidence  in  the  ability  of  the  government  to  put  an 
end  to  the  insecurity  and  also  to  the  irregularity  of  rail- 
way operation,  lays  the  resolution  on  the  table." 

Thus  the  Senate,  with  the  approbation  of  the  min- 
istry, solemnly  affirmed  "the  deplorable  situation,  in- 
security, and  irregularity  in  the  operation  of  the  Wes- 
tern," apropos  of  an  accident  which  occurred  on  the 
old  state  system. 

The  Journal  Officiel,  of  July  12,  contains  the  fol- 
lowing question,  put  by  M.  Engerand,  deputy,  to  Jean 
Dupuy,  minister  of  Public  Works  : 

"What  is  the  number  of  engines,  coaches  and  freight 
cars  destroyed  or  damaged  in  accidents  which  have  hap- 
pened upon  the  Western  railway  from  January  i,  1909, 
to  March  i,  191 2?" 

He  received  the  following  answer: 

"68  engines;  30  tenders;  198  coaches;  and  451  freight 
cars." 

278 


THE   SAFETY   OF    TRAVELERS 

If  the  Socialists  cannot  cite  the  financial  results  of 
the  state  system  as  an  argument  in  favor  of  the  na- 
tionalization of  the  railways,  the  ill  digested  state- 
ments of  Edgard  Milhaud  and  Albert  Thomas,  regard- 
ing the  security  they  offer,  will  certainly  not  convince 
anyone. 


279 


CHAPTER    III 

DISORDERS,   DELAYS    AND    ERRORS 

1.  Telephones. — The  Report  of  Marcel  Sembat. — The  Office 

in  the  Rue  Gutenberg. — Motives  Dictating  the  Choice  of 
the  Site. — Consequences. — The  Commission  of  1900- 
1905. — "A  Wise  Delay." — M.  Steeg. 

2.  The    Administration    of    the    Telegraph. — Technical    and 

Operating  Services. — Maintenance. — The  Underground 
System  of  Paris. — The  Lost  and  Found  Cable. — The 
National  Printing  Office  Again. — Lack  of  Foresight  of 
the  Tobacco  Monopoly. — Construction  of  Government 
Buildings  in  Paris. — Misinformation. — The  French 
Minister  of  Agriculture. — The  Naval  Intelligence  De- 
partment.— Increase  of  State  Functions  Increases  Diffi- 
culty of  Control. 

In  his  character  of  Socialist  Marcel  Sembat  wishes 
the  state  to  take  over  all  public  utilities.  Yet,  as  re- 
porter of  the  budget  of  the  postoffice,  telegraph  and 
telephone  systems,  included  in  the  general  budget  of 
1906,  he  has  demonstrated  very  clearly  what  becomes 
of  a  trading  enterprise  in  the  hands  of  the  state. 

When  the  telephone  first  appeared  in  France  the 
government,  considering  that  it  would  be  hazardous  to 
attempt  its  operation,  granted  to  private  interests  the 
authority  to  take  upon  themselves  this  experiment  at 
their  own  risk,  reserving,  however,  the  right  of  buying 
back  the  powers  thus  granted,  together  with  the  prop- 

280 


DISORDERS,    DELAYS    AND    ERRORS 

erty  accumulated,  for  a  compensation  to  be  agreed 
upon.  In  1880  the  Société  Générale  des  Téléphones 
was  incorporated.  The  franchise  granted  would  have 
come  to  an  end  September  8,  1884,  but  it  was  extended 
for  a  further  period  of  five  years. 

On  July  12,  1882,  the  government  obtained  an  ap- 
propriation of  250,000  francs  to  establish  lines  at 
Rheims,  Roubaix,  Pourcing,  Troyes,  Nancy,  etc., 
where  the  Société  Générale  des  Téléphones  was  not 
operating.  After  some  months  of  operation  the  gov- 
ernment declared  that  it  was  realizing  profits  at  a  rate 
50  per  cent,  lower  than  that  of  the  company.  Septem- 
ber 8,  1889,  that  is  to  say  the  date  of  the  expiration 
of  the  franchise,  the  government  established  the  tele- 
phone monopoly. 

The  purchase  of  the  company's  equipment  had  been 
authorized  by  the  law  of  July  16,  1889.  The  govern- 
ment offered  5,068,836  francs,  but  by  an  order  dated 
May,  1896,  the  Council  of  State  rendered  judgment, 
ordering  the  government  to  pay  9,313,000  francs, 
which,  with  interest,  ultimately  increased  to  11,334,- 
338  francs,  or  126  per  cent,  more  than  the  original 
estimate. 

M.  Sembat  says  : 

"In  replacing  private  enterprise  the  state  had  no  inten- 
tion of  borrowing  its  methods.  This  was  announced  in 
the  very  beginning.  The  first  act  of  the  government  fur- 
nished a  joyful  augury  for  the  future.  It  lowered  the 
rates  on  subscribers'  contracts.  It  was  impossible  to 
know  whether  the  government  was  going  to  sell  service 
at  a  loss.  It  fixed  its  rate  at  a  venture.  The  desire  was 
to  confer  a  boon  rather  than  to  launch  a  great  industry." 

281 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

Thus  in  the  very  beginning  the  actual  price  of  the 
purchase  exceeded  the  estimate  by  126  per  cent.,  and 
rates  were  "fixed  at  a  venture." 

As  a  matter  of  fact,  the  extension  of  time  granted 
the  Société  Générale  des  Téléphones  had  been  far  too 
short.  No  industry  can  establish  itself  and  pay  off  its 
capital  in  five  years.  Therefore,  when  the  government 
replaced  the  company,  the  latter's  equipment  was  be- 
hind the  times.  In  certain  cases  the  intervention  of 
four  operators  was  necessary  to  bring  about  one  con- 
nection. In  America  and  in  several  Belgian  cities  mul- 
tiple switchboards,  so  named  because  the  terminal 
point  of  all  subscribers'  lines  wired  to  the  same  ex- 
change is  repeated  before  each  operator,  were  already 
in  use.  A  single  employee  sufficed  to  connect  two  sub- 
scribers on  the  same  switchboard.  The  French  depart- 
ment had  experimented  with  this  system  at  the  Wag- 
ram  exchange. 

"But,"  says  M.  Steeg,  in  his  report  on  the  budget  of 
1907,  "despite  the  promised  advantages,  for  want  of 
money,  time  and  space,  the  first  installations  of  this  new 
type  have  been  greatly  limited.  Besides,  the  work  has 
been  done  rather  under  the  pressure  of  immediate  needs 
than  in  the  execution  of  a  comprehensive  plan." 

Other  difficulties  also  arose.  The  operators  were 
unprepared  for  the  new  system.  The  plan  of  calling 
subscribers  by  number,  as  required  by  the  multiple 
switchboard,  instead  of  calling  them  by  name,  as  was 
the  custom  under  the  old  system,  bothered  the  opera- 
tors. It  was  finally  decided  to  decrease  the  number 
of  exchanges  and  to  establish  three  large  ones  on  the 
right  bank  of  the  Seine. 

282 


DISORDERS,    DELAYS    AND    ERRORS 

Now  a  business  man  under  existing  conditions  would 
have  sought  the  most  commodious  site  in  order  to 
establish  his  principal  exchange.  But  not  so  the  gov- 
ernment. The  convenience  of  the  chief  telephone  ex- 
change was  subordinated  to  the  needs  of  the  Postoffice. 
Although  constructed  only  ten  years  before,  the  Post- 
office  building  was  completely  outgrown.  The  officials 
did  not  know  where  to  keep  the  mail  wagons.  The 
opportunity  afforded  by  the  establishment  of  the  new 
exchange  was  too  good  to  be  lost.  The  Rue  de  Guten- 
berg— a  short  thoroughfare — was  condemned  and 
closed,  and  a  telephone  building  following  the  line  of 
the  curb  constructed.  The  lower  floor  of  the  new 
building,  however,  was  given  over  as  a  shelter  for  the 
mail  wagons. 

And  here  is  another  curious  point  !  The  Telephone 
department  had  been  anxious  to  do  away  with  the  old 
widely  scattered  exchanges.  But,  after  these  had  been 
concentrated  in  the  same  building,  connections  were 
made  by  the  same  methods  as  had  prevailed  when  the 
offices  were  situated  in  different  buildings. 

As  a  consequence,  and  since  it  was  necessary  to 
carry  interurban  service  lines  and  the  lines  of  three 
bureaus  into  the  same  place,  the  department  was  forced 
to  enlarge  the  conduit  which  runs  from  the  Rue  du 
Louvre  to  the  Rue  Richer  through  the  Rue  Mont- 
martre, at  great  expense  and  in  unusual  proportions. 
Finally  "  a  special  conduit  is  now  required  in  the  Rue 
Etienne-Marcel,  already  over  encumbered,  the  present 
ducts  being  incapable  of  containing  the  too  numerous 
cables  that  must  pass  in  this  direction." 

The  defects  of  such  service  are  easily  seen.     Con- 

283 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

centration  in  the  same  building  of  bureaus  to  all  in- 
tents and  purposes  separate  has  made  necessary  the 
relocation  of  a  vast  mass  of  wires  involving  in  its 
turn  other  undertakings  on  an  unnecessarily  vast  scale. 
As  the  whole  system,  the  very  foundations  of  which 
are  false,  may  have  to  be  renewed  many  times,  it 
ought  surely  to  be  renounced. 

In  1900  a  commission  was  appointed  to  outline  a 
general  course  of  action.  It  discussed  the  question  un- 
til 1905.  That  year  two  switchboards,  each  for  5,000 
subscribers,  were  placed  in  the  Gutenberg  exchange. 
They  were  not  ready  to  use  in  1907.  The  switchboard 
for  5,000  subscribers,  subsequently  ordered  for  the 
Passy  exchange,  has  not  yet  been  installed,  as  is  the 
case  also  with  several  other  switchboards  ordered  for 
a  number  of  other  exchanges.  Considerable  sums 
have  been  spent.  They  have  remained  unproductive, 
and  the  subscribers  are  still  waiting. 

In  1906  a  contractor  made  the  department  a  propo- 
sition to  replace  the  entire  apparatus  of  the  Paris  sys- 
tem by  the  common  battery  system,  adopted  by  all  the 
great  American  companies,  for  20,000,000  francs 
($3,800,000).  A  committee  on  telephone  equipment 
was  appointed  for  the  purpose  of  examining  into  this 
proposition,  "which  its  contract  form."  said  M.  Steeg, 
"caused  to  be  instantly  rejected."  M.  Steeg  mentions 
the  rejection  as  self-explanatory.  I  confess  that  I  do 
not  understand  his  point  of  view.  In  the  interest  of 
the  state,  whenever  it  is  possible,  necessary  work 
should  be  done  by  a  contractor.  Such  a  proceeding 
would  ensure  a  triple  advantage,  viz.  :  a  definite  limit 
to  the  sums  to  be  appropriated,  control  on  the  part  of 

284 


DISORDERS,    DELAYS    AND    ERRORS 

the  state,  instead  of  exorbitant  expense  and  abuses  of 
operation  and,  finally,  responsibility  of  the  contractor. 

However,  the  committee,  owing  chiefîy  to  the  per- 
sistence of  M.  Dennery,  state  engineer,  who  had  seen 
the  common  battery  system  working  in  the  United 
States,  ultimately  concluded  to  adopt  it.  The  neces- 
sary expense  of  equipping  the  Paris  system,  general 
and  private  exchanges,  was  estimated  at  4,000,000 
francs  ($760.000). 

At  last  the  Telephone  department  had  a  definite 
plan  of  action.  But  no  proof  of  any  spirit  of  initia- 
tive had  been  given  ;  for  it  was  only  introducing  a  sys- 
tem already  employed  for  several  years  by  private 
companies  in  the  United  States. 

But,  at  any  rate,  the  new  program  is  at  least  to  be 
carried  out  expeditiously?  M.  Steeg  answers  skepti- 
cally :  "We  dare  not  promise  it."  After  which  he 
proceeds  to  gild  the  pill  with  the  following  glowing 
rhetoric  :  "Like  scientific  discoveries,  industrial  im- 
provements may  at  any  moment  overturn  all  esti- 
mates. Therefore  the  department  must  not  anticipate 
the  future  too  boldly." 

M.  Steeg  may  be  reassured  !  The  department  need 
never  be  afraid  of  anticipating  the  future.  It  is  al- 
ready too  far  behind  the  times  for  that  !  Meanwhile 
telephone  subscribers  are  begging  the  department  to 
conquer  their  fear  of  too  boldly  anticipating  future 
progress  at  least  long  enough  to  give  them  a  reasona- 
bly speedy  connection  when  they  have  summoned  the 
courage  to  ask  for  one. 

The  fire  at  the  Gutenberg  exchange  gave  the  de- 
285 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

partment   another    much-needed    excuse    for    making 
haste  slowly. 

To-day  we  are  enjoying  in  Paris  the  common  bat- 
tery system.  Two  subscribers,  connected  on  different 
exchanges,  can  be  connected  in  less  than  thirty  sec- 
onds. We  never  complain,  however,  if  we  succeed 
in  getting  our  party  within  three  minutes,  a  certain 
proof  that  the  Frenchman  is  the  easiest  man  in  the 
world  to  govern. 

Speaking  of  the  Telegraph  Department,  M.  Dali- 
mier  says  :^ 

"The  French  government  wears  itself  out  in  sterile 
investigations.  When  one  has  had  some  little  contact 
with  the  many-sided  machinery  of  this  complicated  sys- 
tem, he  is  struck  by  the  lack  of  cooperation  among  the 
various  departments.  For  example,  a  very  marked  dual- 
ity is  evident  between  the  technical  and  operating  services. 
Although  theoretically  united  under  the  same  manage- 
ment, each  is  conducted  like  an  autonomous  department. 

"The  technical  service  appears  to  have  made  it  a  rule, 
a  point  of  honor,  in  fact,  to  ignore  the  needs  of  the 
operating  service.  Apparatus  is  furnished  which  renders 
effective  service  very  difficult  and  prevents  the  carrying 
out  of  important  changes.  With  more  up-to-date  equip- 
ment, from  a  practical  point  of  view,  possibly  a  flat  rate 
system  of  subscribers'  schedules  might  already  have  been 
attempted  in  certain  cities." 

In  the  eighteenth  century  Voltaire  reproached  the 
French  government  with  not  occupying  itself  suf- 
ficiently with  the  question  of  the  conservation  of  its 

*  Report  on  the  budget  of  1912. 
286 


DISORDERS,    DELAYS    AND    ERRORS 

resources.  If  we  may  judge  by  the  following  passage, 
also  from  the  report  of  M.  Dalimier,  this  bad  habit 
has  not  yet  been  overcome  : 

"We  can  bear  witness  that  the  underground  urban  sys- 
tem of  Paris  is  in  a  deplorable  condition.  It  is  given 
neither  supervision  nor  methodical  attention.  Repairs 
are  made  in  haste  and  without  proper  oversight.  The  cur- 
rents passing  through  electrical  conductors  are  inter- 
cepted in  the  passage  and  diverted  from  their  cables 
without  any  plan  and  without  technical  precautions. 
Then  the  cables  themselves  are  punctured,  perforated, 
and  crushed  in  the  conduits  without  any  attention  being 
paid  to  the  matter.  Entire  cables  have  been  abandoned. 
Certain  cables  have  been  dug  up  or  have  disappeared 
under  rubbish  without  any  one  having  any  recollection 
of  their  being  there.  In  this  particular  service  negligence 
has  reached  incredible  proportions." 

M.  Dalimier  then  quotes  a  memorandum  of  the 
department,  and  concludes  : 

"To  sum  up,  it  is  acknowledged  that  the  lines  are  in- 
spected only  when  they  cease  to  operate,  and  that,  on  the 
other  hand,  when  it  is  expedient  for  the  force  to  display 
exceptional  zeal,  it  is  enough  for  one  section  of  a  con- 
ductor to  be  regarded  as  doubtful  in  order  to  replace  the 
whole  line  with  a  new  one  !" 

Not  only  does  the  department  neglect  one  system 
but  it  can  completely  forget  others  still  more  neglected. 
Following  the  meeting  of  the  Flood  Commission  a  bill 
was  prepared,  including  among  other  very  urgent  sug- 
gestions, the  construction  of  cables  with  paper  insula- 
tion and  a  sufficient  number  of  conductors  along  the 

287 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

fortifications  of  Paris.  The  expense  was  estimated 
at  2,000,000  francs.  Fortunately,  just  at  this  moment, 
an  entire  network  with  rubber  insulation  and  cast-iron 
conduits  was  discovered,  which  had  been  in  place  for 
more  than  forty  years.  It  was  found  to  be  in  a  state 
of  remarkable  preservation,  in  spite  of  its  complete 
abandonment.  Experts  declared  that,  after  slight  re- 
pairs, and  at  a  cost  of  scarcely  50,000  francs  ($9,500) 
it  could  be  put  in  perfect  condition.  The  technical 
department  had  utterly  forgotten  its  existence.  The 
inspector  of  the  long-distance  underground  line  con- 
nected with  the  operating  service  discovered  it  and 
put  a  stop  to  further  discussion  of  the  bill. 

The  workmen  employed  in  the  National  Printing 
Office  complain  that  the  shops  in  the  Rue  Vieille-du- 
Temple  are  in  reality  so  many  prisons,  and  that,  de- 
prived of  air  and  light,  they  are  working  under  the 
worst  possible  conditions.  A  reporter  sent  out  by  the 
Matin^  gives  the  following  description  of  these  shops: 

"Under  the  escort  of  M.  Clavel,  head  superintendent, 
I  inspected  the  workshops  of  the  National  Printing  Office, 
rummaging  into  the  most  obscure  corners.  I  w^ent  from 
the  cellars  to  the  roofs.  I  walked  miles  through  dark 
passages.  I  ascended  and  descended  millions  of  steps. 
I  saw  composing-rooms  where  artists  executed  typo- 
graphic masterpieces.  I  saw  type  foundries  where,  amid 
the  poisonous  vapors  of  melted  lead,  without  air  and 
without  light,  half  naked  men  were  making  use  of  proc- 
esses and  equipment  that  private  industry  abandoned  a 
quarter  of  a  century  ago.  I  saw  old  and  dilapidated 
printing  machines  under  constant  repair,  and  necessitat- 

^  Le  Matin,  January  28,  1912. 

288 


DISORDERS.    DELAYS    AND    ERRORS 

ing  more  outlay  in  the  way  of  labor  and  expense  than 
new  and  modern  machines  would  require.  I  inspected 
stereotyping  rooms  utterly  barren  of  the  improvements 
introduced  of  late  years.  I  saw  lithographing,  photo- 
graphing and  engraving  rooms,  rooms  where  they  were 
stitching,  binding,  folding,  fastening.  I  saw  the  utter 
disorder  of  those  cemeteries  where  they  bury  the  "forms" 
which  are  saved  either  because  they  can  be  used  again 
or  because  there  are  not  enough  workmen  to  arrange 
them  properly  in  the  lettered  cases  provided  for  that  pur- 
pose. I  saw  the  useless  and  unused  reserve  supply  of 
new  type,  a  capital  of  several  millions,  piled  up  only  to 
justify  the  employment  of  too  large  a  number  of  foundry 
workers." 

In  1908  the  popular  brands  of  tobacco  gave  out* 
Why? 

When  a  good  business  man  sees  his  business  in- 
creasing he  is  careful  to  devote  a  part  of  his  profits 
to  the  improvement  of  his  methods  of  production. 
The  Tobacco  department  was  able  to  show,  in  1902, 
421,000,000  francs  in  gross  receipts;  in  1903,  435,- 
000,000  ;  in  1904,  448,000,000  francs.  But  the  gen- 
eral budget  was  short.  It  therefore  absorbed  the 
whole  sum,  instead  of  setting  something  aside  to  im- 
prove the  equipment  of  this  special  fiscal  monopoly. 
Just  at  this  time,  and  when  the  consumption  of  to- 
bacco was  steadily  increasing,  the  working  hours  of 
the  laborers  in  the  tobacco  factories  were  reduced 
from  10  to  9.  As  a  result,  there  was  a  10  per  cent, 
loss  of  production.  The  equipment  was  in  no  position 
to  ofifset  this  labor  loss  ;  hence  the  deficiency. 

'  See  Le  Client. 

289 


VVlIERi:   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

In  1905  the  department  obtained  some  hundreds 
of  thousands  of  francs  from  the  budgets  of  1906  and 
1907,  to  improve  its  equipment  and  factory  build- 
ings. These  appropriations,  however,  were  tardy  and 
insufficient. 

I  do  not  mean  to  imply  that  the  officials  of  the 
Tobacco  department  had  not  foreseen  the  necessity 
for  this  work,  but  there  was  no  way  of  forcing  the 
minister  of  Finance  to  grant  them  the  necessary  loans 
in  time  to  be  of  service.  Administrative  delays  are  no- 
torious, and  individuals  who  rebel  against  them  are 
sternly  taught  their  place. 

The  reconstruction  of  the  J.  B.  Say  school  has  lasted 
(1912)  more  than  twenty  years.  The  construction 
of  the  school  of  industrial  physics  and  chemistry 
(l'École  de  Physique  et  Chimie  Industrielles),  in  the 
Rue  Vauquelin,  was  decided  upon  in  1898,  but  the 
first  order  was  not  signed  until  1908. 

That  misinformation  as  to  actual  conditions  prevails 
in  government  administration  is  generally  acknowl- 
edged. On  May  17,  19 12,  the  French  ministry  of  Ag- 
riculture— in  its  estimate  of  the  reforms  which  would 
be  brought  about  by  a  lowering  of  the  price  of  wheat 
— made  a  miscalculation  of  5,000,000  cwt. 

In  1909  the  Naval  Intelligence  department  caused 
a  panic  in  Great  Britain  by  announcing  that  Germany 
would  have  13  dreadnoughts  in  1911  and  20  in  1912. 
Mr.  Balfour  aggravated  these  forecasts  by  announc- 
ing that  Germany  would  have  17  dreadnoughts  in 
191 1  and  20  in  1912.  As  a  matter  of  fact,  they  will 
have  only  13  in  1913. 

290 


DISORDERS,    DELAYS    AND    ERRORS 

M.  Perrissoud,  reporter  of  the  state  railway  bud- 
get of  France,  has  declared  that  "the  state  ought  to 
be  a  model  employer  and  give  to  the  taxpayers  the 
largest  opportunities  of  regulation." 

The  taxpayers  cannot  control  government  under- 
takings directly  ;  they  can  only  regulate  condition* 
through  their  representatives. 

The  report  of  Emmanuel  Brousse,  on  the  regulation 
of  the  budget  of  1907,  and  of  Louis  Marin,  on  the 
budget  of  the  ministry  of  Foreign  Affairs  for  the 
present  fiscal  year,  are  sufficient  evidence  of  the  diffi- 
culties experienced  in  attempting  parliamentary  regu- 
lation. 

The  more  functions  exercised  by  the  state,  the 
greater  the  effort  required  to  control  its  various 
activities. 


291 


CHAPTER    IV 
OFFICIAL   CONSERVATISM 

Industrial  Progress  Due  to  Individuals  Not  to  Govern- 
ments.— Official  Conservatism. — Dread  of  Innovation. — 
Departmental  Drinking  Water. — The  Grinding  Stones 
of  the  Bureau  of  Public  Charities. — Telephones. — Pri- 
vate and  Public  Management. — Causes  of  the  Back- 
wardness of  the  Electric  Industry  in  Great  Britain. — • 
Tools  in  the  Workshops  of  the  Ministry  of  War. — 
Labor  Economy. — Work  for  the  Workers  and  Not  for 
the   Service. 

Industrial  progress  is  due  to  individuals,  not  to 
governments.  No  state  discovered  gravitation,  and, 
if  humanity  had  waited  for  governments  to  apply 
steam  and  electricity  to  our  daily  needs,  v^e  should 
have  neither  railways,   telephones,   nor  telegraphs. 

The  official  is  naturally  a  conservative,  and  every 
innovation  frightens  him,  because  he  is  never  sure 
how  it  will  turn  out.  If  he  is  progressive  he  is 
thwarted  by  the  inertia  of  the  organization  of  which 
he  is  a  member.  Should  we  go  so  far  as  to  imagine 
the  administrative  group  to  which  he  belongs  as  being 
other  than  inhibitive  and  inert  other  groups  would 
still  have  to  be  considered.  In  any  case,  it  is  always 
necessary  to  obtain  appropriations  or  special  authority 
beforehand  in  order  to  establish  any  public  undertak- 
ing.   By  insisting  upon  changes  he  must  assume  some 

292 


OFFICIAL    CONSERVATISM 

risk,  even  if  it  is  only  a  burden  of  responsibility,  and, 
as  the  personal  hazards  to  be  run  are  great,  and  the 
personal  profit  contingent  or  insignificant,  things  are 
generally  left  as  they  are. 

This  administrative  lethargy  is  found  even  in  those 
government  or  municipal  enterprises  which  ought  to 
be  most  progressive. 

For  example,  the  ministry  of  Public  Works  in 
France  is  entrusted  with  the  supervision  of  the  Paris 
water  works.  When  I  became  minister  in  1889  I 
found,  to  my  great  astonishment,  that  the  minister  and 
the  employees  of  the  bureau  had  nothing  to  drink  but 
the  water  of  the  Seine.  According  to  the  Matin,  of 
March  20,  1906,  the  minister  of  the  Interior,  whose 
department  includes  that  of  Sanitation,  was  drinking 
Seine  water  at  that  date.  The  Bureau  of  Public  Chari- 
ties of  Paris  is  still  using  grinding  stones  ;  it  is  con- 
sidering transforming  them  into  cylinders.  Such 
facts  as  these,  however,  never  hinder  public  officials 
from  making  complimentary  speeches  and  reports  ex- 
tolling the  foresight,  solicitude  and  competence  of 
the  government. 

The  Swiss  Federal  railways  have  always  been  op- 
posed to  the  creation  of  new  lines  which  might  involve 
competition.  In  fact,  the  department  has  demanded 
that  every  new  franchise  be  submitted  to  it.  Its  de- 
cision was  unfavorable  to  the  Loetschberg  and  Mou- 
tiers-Longeau  line,  which  is  to  bring  the  canton  of 
Bern  into  direct  connection  with  the  Simplon  tunnel. 
Although  the  canton  of  Bern  has  been  able  to  over- 
come this  opposition,  weaker  cantons  may  not  be  able 
to  do  so. 

293 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

I  have  already  outlined  the  rivalry  of  the  Prussian 
railways  and  the  waterways. 

The  different  state  departments  cherish  a  certain 
esprit  de  corps,  and  each  considers  as  an  attempt  made 
against  itself  any  proposition,  however  useful,  which 
might  interfere  with  its  own  development. 

In  his  book  entitled  Public  Ownership  of  Telephones 
on  the  Continent  of  Europe,'^  A.  N.  Holcombe  states 
that,  except  in  Germany  and  Switzerland,  the  telephone 
has  been  introduced  by  private  enterprise  throughout 
all  Europe.  To-day,  except  in  Denmark  and  Spain, 
this  practice  has  been  given  up.  A  government  having 
centralized  the  administration  of  the  telegraph  could 
not  consistently  permit  the  telephone  to  remain  in  the 
hands  of  private  interests.  When  the  telephone  first 
appeared  it  was  universally  opposed  by  the  conserva- 
tive departments  in  charge  of  the  public  telegraph 
service.  They  saw  in  it  a  competitor  whose  influence 
must  be  counteracted.  Later,  as  soon  as  it  was  per- 
ceived that  the  new  utility  would  survive  such  treat- 
ment, nearly  every  government  decided  to  absorb  it. 

When  the  telephone  in  its  turn  had  become  a  gov- 
ernment service  it  also  systematically  opposed  the  de- 
velopment of  all  other  electrical  industries,  especially 
those  using  currents  at  high  frequency,  in  order  to 
protect  their  weaker  current  systems.  Technical  prog- 
ress would  assuredly  have  been  more  rapid  under  a 
system  of  competition.  On  the  whole,  Mr.  Holcombe 
is  favorably  impressed  with  the  organization  of  the 
German  telephone  service,  but  he  states  that  in  1902 

*  Howard  Economic  Studies,  Vol.  6. 
294 


OFFICIAL    CONSERVATISM 

the  telephones  were  four  times  more  numerous  in  the 
United  States  than  in  Germany. 

In  Great  Britain,  in  1880,  the  telephone  was  legally 
declared  to  be  a  telegraph,  and  ultimately  it  became 
a  monopoly  under  the  postmaster-general.  In  19 11 
there  were  only  644,000  telephones  in  use  in  the  Uni- 
ted Kingdom,  while  if  the  proportion  had  been  the 
same  as  that  of  the  United  States  it  would  have  had 
3,000,000.^ 

At  the  annual  dinner  of  the  Institute  of  Electrical 
Engineers,  February  2,  191 1,  its  president,  S.  Z.  Fer- 
ranti,  said  : 

"We  shall  never  know  what  the  municipalization  of 
electrical  undertakings  has  cost  us.  It  has  retarded  prog- 
ress and  is  largely  responsible  for  the  backwardness  of  the 
electrical  industry  in  Great  Britain."  ^ 

In  reporting  the  1913  budget  of  the  French  ministry 
of  War  the  Secretary,  M.  Benzet,  writes  : 

"I  have  observed  that  the  equipment  is  everywhere 
inferior  to  that  of  corresponding  private  undertakings, 
and,  when  I  ask  the  superintendents,  'Why  do  you  not 
make  use  of  such  or  such  an  up-to-date  machine  in  gen- 
eral use  abroad  as  well  as  in  France  ;  or  else,  as  those  you 
have  are  good  enough  machines  although  they  are  fewer, 
why  not  multiply  them  since  they  yield  such  excellent 
results  ?'  I  invariably  receive  the  same  answer  :  'We 
cannot  waste  our  time  over  the  question  of  equipment 

*  Communication  of  Laws  Webb  to  the  London  Cliamber  of 
Commerce,  Morning  Post,  February  18,  191 1. 
'The  Electrical  Review,  February  10,  191 1. 

295 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

because,  as  a  matter  of  fact,  that  question  never  comes 
up  in  army  and  navy  institutions.' 

"And,  gentlemen,  this  fact  is  only  too  evident  ;  for,  in 
getting  to  the  bottom  of  things,  I  have  found  we  vote  ap- 
propriations for  army  and  navy  establishments  without 
even  counting  them.  We  pour  out  the  savings  of  the 
entire  nation  for  the  national  defense  to  ensure  the 
production  of  munitions  of  war,  and  yet  it  is  only  at  the 
close  of  the  fiscal  year,  if  there  is  any  money  left,  that 
we  even  think  of  equipment. 

"Here  is  industrial  inconsistency  for  you.  A  nation 
that  pretends  to  be  a  manufacturer  begins  with  produc- 
tion and  it  is  not  until  later  that  it  takes  up  the  question 
of  the  efficiency  of  its  indispensable  machinery.  It  is 
scarcely  credible  that  conditions  such  as  those  which  I 
am  about  to  describe  can  actually  be  rife  at  the  present 
day. 

"In  the  existing  system  of  operation,  when  production 
is  heavy  there  is  a  large  demand  for  machinery  ;  but 
this  is  also  the  time  when  attention  to  equipment  can 
least  be  spared,  because  when  production  is  heavy  there 
is  nothing  left  at  the  end  of  the  year  to  devote  to  equip- 
ment. 

"On  the  other  hand,  when  production  begins  to  slacken 
and,  consequently,  manual  labor  is  in  little  demand  and 
it  might  be  possible  to  employ  it  in  repairs  and  construct- 
ing machinery,  then,  according  to  the  regulations  in  vogue 
for  many  years,  the  working  force  must  be  reduced." 

The  Secretary  afterward  strove  to  prove  that  the 
"distressing  delays"  in  the  work  of  the  army  and 
navy  establishments  were  due  in  large  measure  to 
extreme  bureaucratic  centralization.  He  then  ex- 
plained in  detail  the  complete  cycle  through  which  a 

296 


OFFICIAL    CONSERVATISM 

single  order  of  the  government  must  pass,  and  con- 
cluded : 

"I  was  anxious  to  discover  how  much  time  would  be 
required  to  fill  the  simplest  order.  I  found  that  no  order 
could  be  executed  in  less  than  95  days  and  in  three-quar- 
ters of  the  cases  the  work  would  require  155  days.  If, 
by  an  unfortunate  chance,  however,  there  is  the  smallest 
modification  necessary,  eight  months,  ten  months,  and 
even  more  are  required. 

"The  result,  as  may  be  readily  seen,  is,  in  the  first 
place,  to  cause  a  serious  interruption  in  the  service.  I 
have  known  cases  where  establishments  have  had  to  hold 
up  pressing  orders  to  get  the  necessary  authority  from 
the  minister  for  the  funds  required  to  carry  out  the 
order  and  deliver  it  before  it  would  be  too  late. 

'T  have  already  spoken  of  the  high  cost  of  such  work. 
This  is  due  to  the  fact  that  the  superintendents,  knowing 
that  there  will  be  a  considerable  delay  before  they  can 
obtain  the  necessary  authority,  seek  to  make  up  for  lost 
time  as  far  as  possible  by  shortening  the  time  of  de- 
livery." 

As  for  the  administration  of  the  telegraph  in 
France  this  is  what  I  find  in  the  Dalimier  report  : 

"After  much  hesitation  the  department  has  decided 
to  adopt  the  installation  of  a  telegraph  'multiple.'  The 
first  appropriations  were  made  in  the  1911  budget,  but 
the  prehminary  investigations  could  not  have  been  very 
thorough,  since,  despite  the  stations  established  since 
1903  in  the  cities  above  mentioned,  and  in  which  the 
'multiple'  system  is  in  operation,  it  was  necessary,  in 
July,  1911,  to  appoint  technical  experts  to  examine  these 
systems  with  a  view  to  choosing  a  system  adapted  to  the 
needs  of  Paris." 

297 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Protectionists  and  Socialists  are  forever  harping 
on  the  old  strain  that  governments  and  municipaHties 
"ought  to  provide  work  for  workers."  The  enterprises 
resulting  from  such  efforts,  far  from  bringing  about 
labor  economies,  must  always  increase  labor  expenses. 
Among  the  excuses  assigned  for  shorter  hours  of 
work  is  found  the  argument  that  if  each  worker  does 
only  half  duty  there  will  be  work  for  two  workers. 
Then,  not  only  must  the  working  hours  be  short,  but 
there  must  be  no  over-production  during  the  time  spent 
by  the  workmen  in  factory  or  shop.  We  encounter 
everywhere  protestations  against  piece-work  and  de- 
mands for  work  by  the  hour  "at  which  nobody  need 
kill  himself."  And  not  only  must  each  man  profit 
in  some  measure  by  the  right  to  be  lazy,  proclaimed  by 
La f argue,  but  if  he  does  not  do  the  work  for  which 
he  is  paid  he  is  accomplishing  a  duty  of  high  social 
consequence  by  leaving  work  for  his  comrades. 

If  the  superintendent  of  the  workshop  wishes  to 
introduce  a  machine  which  could  do  the  work  of  four 
workmen  he  is  accused  of  taking  the  work  from  the 
laborer  instead  of  giving  it  to  him.  Consequently 
he  immediately  antagonizes  all  the  labor  organizations 
and  all  the  municipal  or  government  employees.  He 
is  starving  the  people.  He  is  neglecting  the  funda- 
mental duty  of  government  and  municipal  undertak- 
ings. He  is  a  traitor.  And,  as  an  official  must  be  a 
hero  in  order  to  face  all  this  wrath,  he  is  generally 
careful  not  to  provoke  it.  If  he  learns  that  somewhere 
a  machine  is  doing  the  work  that  he  succeeds  in  get- 
ting done  only  by  heavy  expenditure  for  labor,  he  is 

298 


OFFICIAL    CONSERVATISM 

careful  not  to  ask  for  it.  If  he  can  he  will  be  ignorant 
that  such  a  machine  exists. 

The  material  and  moral  depression  evident  in  every 
state  and  city  undertaking  is  easily  explicable  with 
the  above  facts  in  mind,  and  I  have  frequently  re- 
ceived extraordinary  confidences  on  this  subject. 

The  Socialist  is  accustomed  to  declare  that  he  and 
his  comrades  are  not  enemies  of  progress,  and,  in 
spite  of  the  facts,  he  will  treat  as  calumniators  those 
who  accuse  him  of  it.  He  declares  that  Socialists  are 
not  hostile  to  new  processes,  nor  to  new  machinery, 
except  when  they  put  the  workmen  out  of  work  and 
do  more  work  at  less  expense.  It  follows  that  he  ac- 
cepts the  new  processes  and  the  new  machinery  on 
condition  that  no  economy  is  involved  in  their  use.^ 

But  then,  what  is  the  use? 

*  See  Yves  Guyot,  Science  Économique,  4th  edition,  page  230. 


299 


CHAPTER  V 
LABOR 

1.  "The   Government    a    Model    Employer." — Raising   Sal- 

aries, Reducing  Hours  of  Labor,  Lessening  Returns. 

2.  Increasing    the     Number    of     Employees. — Government 

Railways. — Australia. 

3.  Salary     Increase     in     Paris. — Jewelers    Turned     Street 

Sweepers. — Amalgamation. 

4.  Direct  and  Indirect  Salaries. — Outside  Work  of  the  Em- 

ployees of  the  Navy  Yards. — Increase  in  the  Cost  of 
Construction. 

5.  Employees  of  the  Western  Railway. 

6.  Pensions. — "Active   Service"  According  to  the  Law  of 

1876. — Difficulties  in  the  Way  of  Equitable  Wage  and 
Pension  Adjustment. 

7.  The  English  Trade  Unions  and  Over-Generous  Munici- 

palities.— Influence  of  Associations  of  Municipal  Em- 
ployees. 

8.  Salaries  of  the  Miners  in  the  Mines  of  the  Saar  District. 

9.  Unproductive    Character   of   the    Work   of    Government 

and  Municipal  Employees. — Benjamin  Welton  and  the 
Inefficiency  of  Municipal  Service  in  the  United  States. 
— Causes. — The  Sewer  Diggers  of  Manhattan. 

ID.  "Laborophobia." — The  Employees  of  the  Western  Rail- 
way of  France. 

II.  The  Employees  of  the  Swiss  Federal  Railroad. — Recall 
of  M.  Renault  and  the  Strike  on  French  Government 
Railways. — "Syndicalist  Action  Recognized  by  the 
Western  State  Railway." — M.  Goude  and  the  Navy 
Yard  at  Brest. — An  Insulting  Salutation. — School 
Teachers. — General    Labor    Confederation. — Defective 

300 


LABOR 

System  of  Instruction. — The  National  Printing  Office 
and  the  General  Labor  Confederation. — The  "P.  T. 
T." — Liberty  of  Opinion. — Outrage  and  Menace. — The 
Austrian  Chamber  of  Deputies  and  the  State  Railway 
Employees. 

12.  "An  Industrial  Budget." — Employees  the  Actual  Proprie- 

tors of  the  Service. — The  Prophecy  of  Numa  Droz. — 
Technical  Skill. — A  Switchman,  Minister  of  Public 
Works. — The  Program  of  the  Employees  of  the  Na- 
tional Printing  Office. 

13.  The   Ideal   Administration. — Why   It  Won't  Work. — In- 

termeddling. 

14.  Political  Danger  of  Government  and  Municipal  Under- 

takings.— Employees  the  Masters  of  Their  Employers. — 
Government  of  New  Zealand  and  the  Strikers. — Em- 
ployees Forbidden  to  Take  Part  in  Public  Affairs. — An 
Ineffectual  Prohibition. — Excluding  British  Municipal 
Employees  from  the  Franchise. — Suppression  of  Poli- 
tical Rights  Is  the  Inevitable  Consequence  of  Develop- 
ment of  Public  Operation. 

15.  Rules  for  the  Model  Government  Employer. 

I.  "The  government  ought  to  prove  itself  a  model 
for  all  other  employers."  Such  is  the  stereotyped 
phrase  in  general  circulation  in  Socialist  circles,  and 
all  those  who  repeat  the  phrase  mean  by  it  that  the 
state  shall  raise  wages,  shorten  hours  of  work,  and 
be  satisfied  with  a  smaller  return  from  labor. 

As  a  matter  of  fact,  this  conception  of  the  model 
state  is  one  of  a  robbery  of  the  whole  body  of  tax- 
payers for  the  sake  of  the  minority  who  will  profit  by 
it.  Yet  many  taxpayers  seem  resigned  to  having  such 
a  conception  realized  at  their  expense,  and  the  more 
democratic  the  state  the  more  imperative  arc  the  de- 
mands of  privileged  classes,  and  the  more  chance  there 
is  of  their  ultimate  triumph. 

301 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

2,  The  least  of  the  claims  of  the  average  employee 
consists  in  demanding  an  increase  of  workers  for  the 
same  amount  of  work.  This  is  one  way  of  providing 
work  for  workers,  and  we  may  be  certain  that  the 
latest  comers  will  never  close  the  door. 

We  have  seen  how  such  labor  increases  work  out 
in  the  case  of  the  government  railways. 

In  Australia,  with  the  Labor  party  in  power,  the 
number  of  employees  is  still  increasing.  On  the  first 
of  January,  1911,  the  Australian  Federal  Government 
had  15,120  employees,  receiving  £2,098,500  in  wages; 
but  on  January  i,  19 12,  they  aggregated  16,200, 
with  salaries  amounting  to  £2,720,000. 

3.  The  general  report  of  Louis  Dausset  on  the 
municipal  budget  of  Paris  for  1912  contains  most 
interesting  information  concerning  the  burden  im- 
posed upon  the  budget  of  the  city  and  upon  the  bud- 
gets of  the  various  local  governments  by  the  growing 
exigencies  of  their  employees. 

The  table  given  below  shows  the  considerable  in- 
crease in  the  average  salaries  of  Parisian  municipal 
workers  between  1890  and  191 2: 

1890  1908  19 t2 

Tlie  effective  working 

force  of  the   city.  .  8,152 

Expenditures     (frs.).  10,941,234 

Average  salary  (frs.)  1,342 

Or,  in  other  words,  an  increase  of  70  per  cent,  in 
22  years. 

It  should  be  well  understood,  moreover,  that  the 
net  cost  of  the  various  municipal  activities  has  also 
considerably   increased.     "It  appears,   in   fact,"   says 

302 


10,972 

12,131 

,395.565 

27,259,541 

2,043 

2,289 

LABOR 

M.  Dausset,  in  a  memorandum  coming  to  us  from  the 
Public  Highways  Service,  "that  the  net  cost  per  square 
meter  for  street  cleaning  has  risen  from  o  franc  381 
in  1893,  to  o  franc  417  in  1896,  o  franc  476  in  1902, 
o  franc  513  in  1908,  o  franc  557  in  1912.  This  last 
increase,  however,  should  be  ascribed  to  improvement 
in  equipment.  The  increase  in  labor  expenses  shown 
by  the  budget  of  191 2,  over  that  of  191 1,  amounts  to 
more  than  5,000,000  francs  for  the  municipal  em- 
ployees, properly  so  called. 

From  1908  to  191 2  the  concessions  granted  the 
employees  out  of  municipal  funds  have  called  for  an 
expenditure  of  16,625,000  francs,  of  which  3,976,875 
francs  went  to  the  working  force  connected  with  the 
prefecture  of  the  Seine;  4,789,794  francs  to  the  em- 
ployees of  the  gas  works,  and  473,193  francs  to  the 
various  electrical  plants. 

Moreover,  bills  passed  up  to  the  present  have 
pledged  the  future  to  supplemental  expenditures  of 
about  3,000,000  francs,  which  will  insure  to  municipal 
laborers,  who  constitute  the  most  numerous  class  of 
municipal  employees,  an  average  salary  of  2,356 
francs. 

Now  street  sweeping  has  thus  far  been  a  monopoly 
of  unskilled  labor.  But  what  if  it  should  occur  to 
skilled  workers — jewelers,  for  example — lured  by  the 
superior  advantages  enjoyed  by  the  gentlemen  of  the 
broom,  to  take  their  place  ?  What  then  would  become 
of  the  street  sweepers  ? 

As  a  matter  of  fact  and  as  a  natural  consequence  of 
its  economic  unsoundness,  this  increase  in  salary,  far 
from  being  an  advantage  to  those  for  whose  benefit 

303 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  Municipal  Council  designed  it,  has  actually  re- 
sulted in  a  reclassification  of  labor  downward. 

At  the  same  time  it  is  taking  workers  away  from 
trades  in  which  they  have  passed  years  of  appren- 
ticeship. The  inevitable  result  of  such  labor  condi- 
tions is  only  too  well  illustrated  by  the  industrial  dis- 
turbances at  Sheffield. 

Then  the  condition  of  the  municipal  employee  of 
Paris  has  been  improved,  not  only  by  an  increase  in 
his  salary,  but  also  by  a  decrease  in  his  hours  of  work. 
M.  Dausset  says  : 

"In  our  desire  to  improve  the  condition  of  municipal 
employees  we  have  sometimes  been  reproached  with  hav- 
ing lost  sight  of  the  general  interest  as  well  as  the  most 
urgent  needs  of  the  public  service. 

"This  criticism  has  been  especially  directed  toward  the 
street  cleaning  service.  It  has  been  said  that,  while  the 
work  to  be  done  has  notably  increased,  the  number  of 
working  days  is  rapidly  diminishing,  following  philan- 
thropic measures  passed  one  after  the  other  in  favor 
of  the  employees.  Full  pay  for  two  days'  rest  a  month  ; 
sick  days;  an  annual  vacation  of  lo  days,  lately  brought 
to  12;  noonday  rest,  etc.  The  laborer  in  the  street  clean- 
ing department  who  in  1893  furnished  annually  3,410 
hours'  work,  in  1896  furnished  only  3,250;  3,230  in  1908; 
and  2,940  in  1909,  or,  in  1908-1909,  a  decrease  of  9.5 
per  cent." 

Now  when  a  state  or  a  municipality  contracts  with 
a  middleman  for  any  kind  of  service  it  should  have 
but  one  thought  in  mind  :  net  cost  and  quality  of  the 
service. 

It  ought  to  aim,  above  all,  at  economy;  because  all 

304 


LABOR 

favors  and  privileges  granted  by  statesmen  or  adminis- 
trators are  paid  for  by  the  taxpayers. 

The  Municipal  Council  of  Paris  recently  withdrew 
entirely  from  the  direct  administration  of  its  gas 
works,  but  it  subsequently  abandoned  its  principle  of 
non-interference  when  it  agreed  with  the  operating 
gas  company  to  introduce  into  the  contract  between 
itself  and  the  said  company  the  alliance  of  employees 
of  the  gas  works  with  municipal  employees. 

Here  is  the  result  of  this  agreement,  according  to 
M.  Dausset's  report  : 

"Whereas  before  the  alliance  the  salaries  of  the 
gas  employees  varied  from  1,200  to  3,300  francs,  imme- 
diately after  it  the  average  salary  of  the  two  most  im- 
portant classes  of  employees  in  this  industry,  viz.,  cleri- 
cal workers  and  inspectors,  rose  to  3,347  francs  follow- 
ing automatic  promotion  into  the  first  employee  class  of 
a  very  large  number  of  employees  by  reason  of  their 
length  of  service. 

"Collectors  saw  their  maximum  salary  rise  from  1,800 
francs  to  3,000  francs  and  their  commission  from  50  to 
100  francs. 

"The  incessant  increase  of  expenditures  under  the 
head  of  employees  exceeds  the  economies  resulting  from 
the  improvements  introduced  into  the  manufacture  of 
gas.  Unfortunately,  new  excuses  for  further  expendi- 
tures are  constantly  arising,  and  dangerous  precedents  are 
being  established  without  any  corresponding  decrease  in 
the  number  of  claims.  No  sooner  is  one  claim  satisfied 
than  another  bobs  up,  the  more  urgent  and  the  more 
frequent  in  proportion  to  the  amount  it  is  going  to  cost 
the  city. 

"The  labor  expenses  which  in   1908  were  30,819,595 

305 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

fr.  14,  amounted  in  the  following  year  to  31,726,165  fr. 
2.2,  and,  in  1910,  to  33,382,850  fr.  30,  out  of  which  11,- 
439,896  fr.  15  went  to  salaried  employees  and  21,942,954 
fr.  15  to  laborers. 

"An  estimate  may  be  made  for  the  current  year  (1911) 
amounting  to  a  sum  total  of  34.525,000  fr.,  out  of  which 
12,055,000  fr.  will  go  to  employees  and  22,470,000  fr.  to 
laborers. 

"The  increase,  according  to  the  report  of  1910,  is  thus 
1,142,149  fr.  70,  divided  as  follows: 

Fr.  c. 

Employees    615,103  85 

Laborers    527,045  85 

Total 1,142,149  70 

"Now,  on  December  31,  1910,  the  effective  working 
force  amounted  to  3,076  employees  and  9,354  laborers. 
But  on  November  i,  1911,  this  number  had  shrunk  to 
3,086  employees  and  9,195  laborers,  a  net  decrease  of 
149  workers.  On  the  other  hand,  it  must  be  remembered 
that  the  working  force  will  again  increase,  as  it  does  each 
year  from  November  to  December  31,  through  the  enlist- 
ment of  extra  men,  and  in  proportion  to  the  amount  of 
manufacturing  undertaken. 

"In  1905,  the  last  year  of  operation  of  the  Paris  gas 
company,  the  labor  expenses  amounted  to  only  24,038,951 
fr.  59.  Therefore,  in  6  years,  and  excluding  supple- 
mentary pension  charges,  there  has  been  an  increase  of 
more  than  10,000,000  fr.,  by  which  gas  employees  of  all 
classes  have  benefited.  While  the  condition  of  our  budget 
has  not  as  yet  permitted  us  to  realise  the  decrease  in  the 
cost  of  gas,  by  which  the  whole  body  of  consumers  will 
profit,  the  nezv  privileges  which  we  have  awarded  to  the 
employees  represent  more  than  2  centimes  per  cubic  meter 
of  gas  manufactured.     In  addition  to  that  we  give  out- 

306 


LABOR 

right  each  year  to  the  gas  employees  a  profit  of  twelve 
additional  centimes." 

"At  this  rate  the  employees  of  the  gas  department 
will  end  by  cutting  out  all  profit,"  says  M.  Caron, 
former  president  of  the  Municipal  Council.^ 

In  19 1 2  the  employees  of  the  gas  company  com- 
plained to  the  Municipal  Council  of  Paris.  The  fore- 
men demanded  an  indemnity  for  delay  in  promotion 
as  guaranteed  by  their  alliance  with  municipal  em- 
ployees. Whereupon  the  administration  and  the 
Municipal  Council  promptly  recanted.  M.  Dausset 
says  in  his  report  :  ^ 

"It  is  an  erroneous  interpretation  of  the  agreement 
entered  into  with  the  gas  company  to  hold  that  it  has 
become  completely  identified  with  the  public  service  of 
the  city  in  all  the  details  of  its  internal  organization  and 
functions.  The  gas  company  is,  of  course,  expected  to 
conform  to  the  wage  or  salary  scale,  and  to  the  regula- 
tions governing  pensions,  vacations,  working  conditions, 
etc.,  in  force  in  the  municipal  service.  Nevertheless, 
each  department  maintains  its  separate  organization  and 
its  own  proper  functions.  Irregular  promotions  may  oc- 
cur and  the  necessities  of  the  service  can  bring  about 
the  establishment  of  new  grades  in  one  department, 
the  creation  of  which  would  not  be  justified  in  the  other. 
Although  the  prefect  of  the  Seine  has  consented  to  a  cer- 
tain number  of  high-salaried  positions  for  the  benefit  of 
the  employees  of  the  gas  company,  he  has  done  so  only 
from  a  sentiment  of  good  feeling  toward  a  personnel 
which  merits  our  sympathies  ;  but  this  measure  ought  not 

'  Société  d'Economie  Politique.     See  Journal  des  Economistes, 
December.  1911. 
"  Conseil  Municipal  de  Paris,  1912,  No.  46. 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

to  be  considered  as  a  necessary  consequence  of  the  amal- 
gamation." 

That  these  observations  of  M.  Dausset  are  perfectly 
reasonable  is  evident  enough.  But  they  necessarily 
undermine  the  system  of  amalgamation  by  proving 
that  it  cannot  be  complete.    Further  on  he  says  : 

"We  do  not  believe  that  there  is  any  reason  for  making 
a  new  extension  of  the  system  of  amalgamation  in  favor 
of  chauffeurs.  The  same  thing  may  be  said  in  the  case 
of  the  bag  makers  who  are  demanding  to  be  amalgamated 
with  the  street  sweepers." 

So  far  as  the  waste  collectors  are  concerned  the 
committee  refused  them  an  increase  of  salary.  How- 
ever, since  the  cash  clerks  of  the  city  were  receiving 
a  commission  of  300  francs,  while  that  of  the  collec- 
tors was  only  100  francs,  "there  is  a  manifest  injustice 
here,"  says  the  report  ;  and  the  administration  is  rec- 
ommended to  raise  the  compensation  of  the  latter  to 
the  higher  figure. 

4.  In  all  government  service  there  are  both  direct 
and  indirect  salaries. 

To  all  appearances  the  Navy  pays  laborers  in  the 
navy  yards  low  salaries  :  from  3  francs  80  to  4  francs, 
compared  with  5  francs  and  above  in  the  industry  at 
large.  But  the  difference,  says  the  report  of  the  Com- 
mittee on  Labor  Accounts,  is  very  much  less  when 
we  consider  the  various  advantages  enjoyed  by  the 
employees  of  the  Navy — pensions,  direct  and  indirect, 

308 


LABOR 

insurance  against  nonemployment,  treatment  at  hos- 
pitals or  at  home,  etc. 

As  a  basis  of  comparison  M.  Rousseau  takes  one 
day's  work  on  the  Jean  Bart.  In  this  way  he  obtains 
a  standard  wage  of  4  francs  for  a  working  day  of  8 
hours  ;  apprentices  included,  foremen  not  included. 
This  makes  5  francs  15  for  a  ten-hour  day;  more  than 
the  average  salary  in  private  undertakings.  Nor  does 
this  figure  include  either  pensions  or  vacations  at  full 
pay  (which  increase  the  annual  salary  by  4  per  cent.), 
sick  benefits,  pay  during  dull  seasons,  or  "even  the  lib- 
eral allowances  which  may  be  granted  by  any  minister, 
such  as  pay  without  corresponding  work  for  two  days 
at  Christmas  and  New  Year's,  or,  in  round  figures, 
440,000  francs,  of  which  a  simple  ministerial  signature 
can  relieve  the  treasury." 

The  effect  produced  upon  the  cost  of  naval  con- 
struction in  our  navy  yards  by  the  shortening  of  the 
working  day,  as  well  as  by  vacations  at  full  pay,  for 
which  the  budget  of  191 1  granted  the  first  appropria- 
tion, is  shown  by  the  following  table,  which  estimates 
the  cost  of  the  work  on  the  Jean  Bart,  on  the  basis  of 
a  9^ -hour  day,  an  8-hour  day,  and  a  7-hour  40-min- 
ute  day,  the  latter  corresponding  to  an  8-hour  day 
shortened  by  the  fraction  1/24,  representing  15  days 
of  vacation  with  pay. 

The  Committee  on  Labor  Accounts  declares  that 
"the  new  institutions  in  the  Navy,  by  reason  of  the 
8-hour  day,  find  themselves  at  a  disadvantage,  com- 
pared with  the  industry  at  large,  both  from  the  point 
of  view  of  rapidity  of  construction  and  net  cost." 

309 


WHERE  AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  salary  remaining  the  same  for  a  day  of 

9  hrs.  30  min.  8  hours        7  hrs.  40  min. 

The  construction  of  the 
Jean  Bart  would  require: 

Days     1,515,790        1,800,000        1,880,000 

Or  in   money    (francs)         6,230,000        7,400,000        7,727,000 
The  minimum  pension    (25 
years    of   service)    is    ob- 
tained by  an  active  serv- 
ice during  : 

Hours    71,250  60,000  57,450 

The  construction  of  the 
Jean  Bart  gives  pension 
rights  to  : 

Men    202  240  250 

The  relative  annual  charge 
resulting  is  : 
Francs    121,200  144,000  150,000 

M.  Cuvinot,  who  reported  on  the  Navy  budget  in 
the  Senate,  has  estimated  the  loss  resulting  from  the 
shortening  of  the  working  day  to  8  hours  at  4,500,000 
francs. 

The  employee  of  the  navy  yards  knows  how  to 
make  profitable  use  of  his  leisure  hours.  In  his  Voy- 
age Révolutionnaire,  M.  Grifïuelhe  declares  that  by 
beginning  work  in  the  morning  at  7  o'clock  and  quit- 
ting at  5,  he  is  "one  of  those  employees  who  increase 
their  salaries  by  working  a  couple  of  hours  more  at 
some  employment  in  the  city.  A  number  work  in 
barber  shops,  others  are  carpenters,  shoemakers,  etc." 
The  work  of  these  government  employees  thus  con- 
stitutes competition  of  a  privileged  class  against  the 
workers  employed  by  private  industry. 

Moreover,  I  have  been  told  that  the  laborer  in  the 
navy  yard  husbands  his  strength  during  the  day  in 

310 


LABOR 

order  to  be  able  to  make  better  use  of  his  leisure 
hours  in  the  city. 

5.  The  reinstatement  of  all  railway  employees  af- 
ter the  recent  railway  strike  has  confirmed  the  con- 
viction that  they  are  the  masters,  and  that  it  is  sufficient 
for  them  to  threaten  in  order  to  obtain  what  they 
want.  Among  other  things,  they  have  obtained  a  sys- 
tem of  regular  promotion,  which  makes  it  easy  for 
them  to  dispense  with  all  energy  and  zeal. 

Moreover,  as  if  in  order  to  encourage  further 
claims,  M.  Cheron  has  taken  care  to  make  a  compara- 
tive table  of  the  condition  of  the  railway  employees 
before  and  after  the  purchase. 

Western 
Company  (1908)     Government  (i  912) 
Deficits  from  operation   25,822,000  fr.        83,673,000  fr. 

The  increase  in  operating  costs  is  72,304,000  francs. 
The  employees  are  responsible  for  52,296,000  francs 
of  it.  This  increase  was  prophesied  by  the  opponents 
of  the  purchase. 

We  have  just  seen  how.  at  the  very  time  it  was  prov- 
ing its  inability  to  maintain  order  or  to  keep  its  em- 
ployees at  work  in  the  arsenals  of  the  Navy,  the  gov- 
ernment must  needs  assume  the  responsibility  of  di- 
recting more  than  50,000  railway  employees.  More- 
over, as  a  result  of  this  increase  in  the  number  of  gov- 
ernment employees,  the  number  of  pensions  has  like- 
wise increased.  By  lowering  the  age  limit,  the  same 
result  has  been  effected.  The  same  public  utility  or  any 
other  undertaking  must  pay  each  employee  not  only  his 
salary  but  two  or  three  pensions  beside.     Thus  we  are 

311 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

establishing  a  class  of  semi-independent  gentlemen, 
who  live  at  the  expense  of  the  taxpayer,  who  often, 
thanks  to  the  pension  which  they  enjoy,  make  danger- 
ous and  underbidding  competitors  of  free  labor. 

In  his  preliminary  work  on  the  law  of  June  9. 
1853,  M.  Stourm,  councillor  of  state  and  government 
commissioner,  defined  active  service  as  "a  day  and 
night  service  which  exposes  those  engaged  in  it  to 
fatigues,  diseases  and  dangers."  ^  The  law  of  Au- 
gust 17,  1876,  classes  among  those  in  "active  service" 
inspectors,  superintendents,  and  teachers  employed  in 
the  primary  normal  schools,  public  school  teachers,  and 
matrons  of  orphan  asylums. 

The  employees  connected  with  the  prefecture  of 
the  Seine  were  anxious  to  obtain  the  pension  propor- 
tioned to  the  time  of  service,  provided  for  by  Article 
9  of  the  law  of  July  21,  1909,  and  given  to  em- 
ployees of  the  railways,  who  "quit  the  service  either 
voluntarily  or  for  any  other  cause,  if  they  have  been 
affiliated  with  it  more  than  15  years."  ^ 

The  Municipal  Council,  however,  declined  to  be 
so  generous.  It  reduced  by  a  half  the  length  of  service 
pension  of  the  employee  who  had  been  dismissed,  and 
it  refused  to  the  official  who  had  left  the  service  all 
right  to  a  pension. 

Under  the  above  conditions  the  police  were  granted 
pensions  for  life,  duly  proportioned  to  their  term  of 

^Moniteur.  May  17,  1853. 

'Yves  Guyot,  Les  Chemins  de  Fer  et  la  Grève,  page  149. 
312 


LABOR 

service.  The  sum  amounted  to  1,300,000  francs  in 
191 1.  In  regard  to  active  service  the  rating  is  50  years 
of  age  and  10  years  of  service.  The  figure  was  fixed 
at  10  years  in  order  to  help  out  former  non-commis- 
sioned officers  admitted  to  the  public  service  and  who 
hold  four-fifths  of  the  positions  available. 

Employees  and  workmen  attached  to  the  govern- 
ment have  but  one  thought,  to  hunt  up  excuses  and 
methods  to  "improve  their  situation."  Among  the 
excuses  is  a  very  simple  one,  ready  to  hand  for  every 
occasion,  and  having  a  certain  degree  of  justice  in  it 
— equal  work,  equal  wages.  Such  or  such  an  em- 
ployee, in  such  and  such  a  service,  receives  such  and 
such  wages  and  such  and  such  a  pension  ;  why  not  I  ? 

Before  the  purchase  of  the  Western  railway  the 
opponents  of  the  measure  said  to  the  government  : 
The  employees  and  laborers  on  the  lines  already  be- 
longing to  the  state  are  receiving  salaries  and  pensions 
greater  than  those  of  most  of  your  other  employees, 
and  yet  you  would  increase  their  number.  The  em- 
ployees of  the  Customs,  the  Postoffice,  the  police  and 
other  public  departments  will  demand  alliance.  What 
will  your  answer  be?  ^ 

I  note  in  the  Journal  Officiel,  of  July  27,  a  series 
of  questions  put  by  Patureau-Mirand,  one  of  the 
deputies,  to  the  minister  of  Finance,  in  which  this  idea 
of  alliance  was  constantly  referred  to.  Here  are  two 
of  these  questions  : 

M.  Patureau  Mirand  asked  the  minister  of  Finance 
whether  he  intended  to  incorporate  in  his  budget  a 

'  See  Yves  Guyot,  Les  Chemins  de  Fer  et  la  Grève,  page  50. 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

plan  for  raising  by  a  tenth  the  wages  or  salary  of  the 
deceased,  with  a  minimum  of  250  francs  at  Paris,  and 
150  francs  in  the  provinces,  as  is  done  in  the  case  of 
the  employees  of  the  state  railways,  who  are  receiving 
a  wage  less  than  4,000  francs;  and  an  allowance  for 
burial  expenses  to  customs  officials  and  state  factory 
workers  who  die  in  active  service — an  allowance  which 
would  amount  to  only  60  francs  in  the  first  case  and 
50  francs  in  the  second. 

"Answer — In  the  state  factories  the  allowance  of  60 
francs  (to  subordinate  officials)  or  50  francs  (to  labor- 
ers) is  granted  not  only  on  the  occasion  of  the  death 
of  employees  in  active  service,  but  also  at  the  death  of 
employees  who  have  left  the  service.  In  this  latter  re- 
spect the  employees  of  state  manufacturing  enterprises 
are  treated  more  generously  than  those  of  the  state  rail- 
ways. 

"Because  of  the  excessive  expense  which  would  re- 
sult from  such  a  measure,  it  is  apparently  not  possible 
to  increase  the  figure  to  the  sum  demanded.  In  any  case, 
the  question  would  have  to  be  made  the  subject  of  an 
exhaustive  investigation  with  respect  to  all  the  trading 
undertakings  of  the  state. 

"Answer  of  the  minister  of  Finance  to  question  number 
2,116  put  by  M.  Patureau-Mirand,  deputy,  July  12,  1912. 
M.  Patureau-Mirand  asked  the  minister'  of  Finance 
whether  he  intended  to  provide  in  his  next  budget  for 
a  grant  having  a  retroactive  effect  in  favor  of  subordinate 
officials  and  employees  of  government  manufacturing 
enterprises  who  have  been  granted  medals  of  honor,  a 
special  bounty  of  100  francs,  as  is  done  in  the  case  of 
employees  on  the  state  railways  on  whom  the  medal  of 
honor  has  been  conferred, 

314 


LABOR 

"Answer — The  question  of  the  awarding  of  bounties 
to  government  inspectors,  and  employees  granted  the 
medal  of  honor  for  efficient  work,  is  of  interest  not  only 
to  the  employees  of  the  state  manufacturing  enterprises, 
but  also  to  those  connected  with  the  other  government 
trading  undertakings.  Therefore  it  cannot  be  decided  ex- 
cept after  an  exhaustive  study  tending  to  determine  the 
financial  consequences  which  would  result. 

"In  any  event,  there  could  be  no  question  of  granting 
a  bounty  with  a  retroactive  efifect  to  all  employees  upon 
whom  the  medal  has  been  bestowed,  because  of  the  con- 
siderable burden  that  such  a  measure  would  entail  upon 
the  budget." 

The  minister  of  Finance  confines  himself  to  "trad- 
ing undertakings."  How  about  the  employees  of  other 
state  activities,  viz.  :  the  Customs,  Direct  Taxation, 
etc.  ?  Will  they  not  have  the  right  to  ask  :  "Why  are 
we  left  out?" 

Under  the  pressure  of  this  feeling  and  the  demands 
of  labor  associations,  which  have  made  more  or  less 
direct  declarations  of  similar  sentiments,  a  bill  has 
been  passed  entailing  still  further  expenditures  for 
the  improvement  of  the  conditions  of  the  employees  of 
the  Postoffice,  Telegraph  and  Telephone  department; 
the  Bureau  of  Indirect  Taxation,  and  the  Customs  of- 
fice. These  expenditures  amount  to  36,879,800  francs, 
29,990,800  francs  of  which  goes  to  the  employees  of 
the  Postal,  Telegraph  and  Telephone  department, 
4,650,000  francs  to  the  employees  of  the  Bureau  of 
Indirect  Taxes,  and  2,239,000  francs  to  those  of  the 
Custom  House. 

315 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  official  explanation  of  the  underlying  motives 
inspiring  this  bill  brings  out  the  necessity  of  amalga- 
mation for  the  sake  of  the  officials  and  subordinates  of 
the  Postoffice;  it  adds  that  the  expenses  just  quoted 
will  have  an  immediate  efïect  upon  the  financial  con- 
dition of  the  indirect  tax  officials  and  of  a  part  of 
the  employees  of  the  Custom  House.  It  was  to  take 
efïect  October  i,  1912.  The  budget  of  1913  will  have 
to  provide  7,000,000  francs  of  the  total  sum.  The 
measure  will  be  in  full  running  order  in  1916. 

During  the  course  of  the  Teachers'  Congress,  at 
Chambéry,  M.  Guist'hau  anounced  that  he  would 
not  permit  associations  of  teachers  to  become  affili- 
ated with  the  workers'  exchange  (Bourse  du  Tra- 
vail), but,  in  lieu  thereof,  he  promised  to  grant  them 
concessions  amounting  to  40,000,000  francs  to  be  dis- 
tributed over  a  period  of  five  years. 

We  may  be  certain  that,  after  the  appearance  of 
the  next  budget,  deputies  will  be  demanding  a  short- 
ening of  the  time  for  the  distribution  of  the  77,000,- 
000  francs. 

7.  The  English  trade  unions  complain  that  the  mu- 
nicipalities make  better  conditions  with  employees 
than  can  be  obtained  from  private  enterprises.  They 
consider  the  municipalities  as  dangerous  competitors; 
for  in  Great  Britain  the  members  of  the  trade  unions 
threaten  to  abandon  them  in  order  to  become  members 
of  the  Municipal  Employees'  Association.  The  Con- 
gress of  Trade  Unions  of  Liverpool  passed  a  resolu- 
tion on  this  matter  in  1906. 

316 


LABOR 

Although  the  various  public  undertakings  of  Man- 
chester have  passed  a  resolution  urging  that  the  rec- 
ommendations of  municipal  councillors  be  ignored, 
it  is  scarcely  probable  that  the  resolution  has  produced 
any  effect.  According  to  the  investigation  of  The 
National  Civic  Federation  of  the  United  States  all  the 
municipal  workers  of  Glasgow  are  recommended  by 
municipal  councillors.^  Moreover,  according  to  the 
report  of  the  same  investigators,  throughout  all  Great 
Britain  the  municipal  departments  negotiate  with  the 
representatives  of  employees.  As  these  latter  are  at 
one  and  the  same  time  employees  and  electors,  they 
thus  become  the  masters  of  those  whom  they  ought  to 
obey;  and,  the  more  their  number  grows,  the  more 
concessions  they  exact  at  the  expense  of  their  fellow- 
citizens. 

At  West  Ham  the  Municipal  Council  delayed  the 
opening  of  its  session  in  order  that  municipal  em- 
ployees, sewer  diggers,  street  sweepers  and  teamsters, 
could  attend  and  make  known  their  opinions. 

The  National  Union  of  Gas  Workers  and  General 
Laborers,  organized  in  1889,  represents  the  trade 
unions  of  the  unskilled,  that  is  to  say,  the  manual 
laborers.  It  has  had  at  its  head  such  leaders  as  John 
Burns,  Tom  Mann,  Ben  Tillett.  and  Will  Thorne.  In 
1890  it  organized  a  strike  at  Manchester,  and  was  suc- 
cessful ;  with  the  South  Metropolitan  Company  it 
failed.  It  numbers  30,000  members,  distributed 
among  the  various  municipal  gas  undertakings,  but  its 

^  Municipal  and  Private  Operation  of  Public  Utilties,  Na- 
tional Civic  Federation,  1907. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

membership  also  extends  into  various  private  enter- 
prises which  manufacture  other  products  than  gas. 
Article  lo  of  its  platform  is  worded  as  follows: 

"To  insure  the  sending  of  members  of  urban  district 
councils  as  representatives  on  boards  of  guardians,  in 
municipal  bodies  and  in  Parliament  only  on  condition 
that  they  be  partisans  of  public  ownership  of  the  means 
of  production,  distribution  and  exchange." 

In  1892  the  Union's  general  secretary,  Will  Thorne, 
was  elected  member  of  Parliament  for  West  Ham. 
It  has  also  had  other  electoral  successes. 

In  1905  Keir  Hardie  formed  the  Municipal  Em- 
ployees' Association.  Its  defenders  say  that  it  con- 
tains 2,000,000  members,  a  membership  which  would 
appear  to  be  greatly  exaggerated.  But  there  are  asso- 
ciated local  unions. 

8.  The  state  does  not  pay  higher  salaries  than  pri- 
vate industry,  except  when  it  is  compelled  to  do  so 
through  the  weakness  of  state  officials.  In  Prussia, 
where  the  electoral  influence  of  the  workers  is  feeble, 
the  maximum  salaries  of  the  fiscal  mines  of  the  Saar 
district  were,  in  1908,  much  lower  than  those  paid  by 
private  industry  in  the  valleys  of  the  Ruhr  and  of  the 
Wurm;  whereas  the  cost  of  living  is  practically  the 
same  in  all  these  districts.  According  to  a  memorial 
addressed  by  the  Association  of  Christian  Miners  to 
the  Prussian  ministry  of  Commerce  and  Industry,  on 
the  22nd  of  October,  the  annual  average  of  salaries 
has  been  decreased  by  reason  of  unemployment  and 
reduction  of  wages. 

318 


LABOR 


Salaries  in  the  Saar 
District 

Difference  in  Favor 
OF  La  Ruhr 

Difference  in 
Favor  of  Wurm 

Per 
Year 

Per 

Workday 

Per 
Year 

Per 
Workday 

Per 
Year 

Per 

Workday 

Marks 

Marks 

Marks 

Marks 

Marks 

Marks 

1908 
1909 
I9IO 
I9II 

1,182 
1. 136 
1,122 

4.04 

3-97 
4.02 

313 
214 
260 
136 

0.78 
0.59 
0.57 
0.63 

227 
208 

257 
114 

0.53 
0.49 
0.52 
0.59 

The  facts  thus  brought  out  were  not  denied  in  the 
Chamber  of  Deputies,  but  the  minister  answered  that 
it  was  impossible  to  increase  profits  and  salaries  at  the 
same  time. 

The  miners  also  complained  that  salaries  continued 
to  decrease  in  face  of  the  higher  cost  of  food.  More- 
over, they  brought  up  the  interesting  comparison 
that,  in  1908,  an  increase  of  salary  had  been  granted 
to  the  mine  officials,  while  the  miners  were  voted  a 
substantial  decrease. 


9.  As  causes  are  practically  identical  in  all  countries, 
so  effects  are  usually  identical.  Characteristic  of  this 
universality  of  cause  and  effect  is  the  absence  of  pro- 
ductive energy  in  the  work  of  the  employees  and 
laborers  of  national  municipal  undertakings.^  From 
1893  to  1902  the  department  of  Public  Works  carried 
on  a  number  of  undertakings  for  the  London  County 
Council.  Seventy-nine  thousand  pounds  sterling  was 
demanded  over  and  above  the  original  appropriation. 

Two  years  afterward  it  was  declared  that  these  con- 
structions have  cost  £40,000  more  than  would  have 
been  the  case  if  they  had  been  confided  to  a  private 

*  See  Raymond  Boverat,  Le  Socialisme  en  Angleterre. 


WHERE  AND   WHY    PUBLIC   OWISTERSHIP    HAS    FAILED 

company.     The  dififerences  in  the  estimates  submitted 
varied  from  ii  to  40  per  cent.^ 

Lord  Avebury  says  :  "A  municipal  workman  lays 
300  bricks  during  his  day's  work,  where  the  American 
laborer  will  lay  from  2,000  to  2,700." 

An  alderman  of  West  Ham  calls  the  system  of  con- 
struction under  municipal  direction:  "The  monopo- 
lizing of  laziness." 

A  municipal  councillor  of  the  same  municipality 
answered  :  "I  care  little  about  the  taxes  or  about 
those  who  pay  them.  What  I  am  interested  in  are 
my  electors."  ^ 

Benjamin  F.  Welton,  engineer  in  charge  of  the 
Bureau  of  Efficiency  in  New  York,  says  of  the  pro- 
ductive energy  of  municipal  workers  :  ^ 

"Except  to  the  few  who  have  made  a  study  of  the  sub- 
ject, the  extent  of  municipal  inefficiency  is  almost  unbe- 
lievable. Lacking  the  measure  of  efficiency  in  private 
enterprise,  there  can  be  no  conception  of  the  actual  inef- 
ficiency of  public  service." 

During  the  last  five  years  Mr.  Welton  has  been 
making  investigations  in  several  of  the  boroughs  of 
New  York  City  for  the  Commissioners  of  Accounts, 
and  in  Chicago  for  the  Merriam  Commission.  At  first 
the  observations  were  secret;  afterward  a  duplicate 
series  was  conducted  openly.    By  comparing  the  earlier 

^  The  Accountant,  July  31,  1897. 
'  The  Times.  September  16,  1902. 

'  EfRciency  in  City  Government,  Annals  of  the  American 
Academy  of  Political  and  Social  Science,  May,  1912,  page  103. 

320 


LABOR 

observations,  which  would  obviously  indicate  normal 
inefficiency,  with  those  made  later,  it  was  ascertained 
that  the  loss  of  efficiency  varies  from  40  to  70  per  cent. 
The  loss  of  efficiency  in  the  work  done  for  a  great 
municipality  may  therefore  be  estimated  at  about  50 
per  cent. 

The  City  of  New  York  pays  $17,000,000  to  its  mu- 
nicipal workers.  The  inefficiency  in  the  work,  there- 
fore, represents  a  loss  of  $8,500,000.  Mr.  Welton 
gives  an  excellent  explanation  of  the  causes  of  this 
inefficiency.  They  are  the  same  everywhere.  Meas- 
ures are  taken  to  guarantee  control  of  expenditures 
and  prevent  favoritism,  but  without  accomplishing 
anything  in  the  end.  From  the  point  of  view  of  em- 
ployment, lists  of  preferred  candidates  play  a  deplora- 
ble rôle.  Men  have  been  employed  in  moments  of 
pressure  and  afterward  been  discharged.  These  are 
naturally  the  least  capable  ;  but  they  are  placed  upon 
preferred  lists  and  thus  they  ultimately  come  to  form 
the  real  personnel. 

No  employee  can  be  forced  to  render  any  service 
not  previously  contracted  for.  This  is  one  way,  of 
course,  of  combating  favoritism,  but  a  very  incon- 
venient one.  Moreover,  the  City  of  New  York  must 
accept  as  employees  veteran  soldiers  and  firemen. 

The  fiscal  authorities  demand  economy,  but  they 
understand  by  the  term  not  efficiency  of  service,  but 
rather  the  conservation  of  funds.  For  some  years  in 
a  certain  number  of  cities — among  others  New  York 
and  Chicago — a  form  of  control  has  been  in  opera- 
tion known  as  the  "segregated  budget."  Each  item, 
whether  of  labor,  of  material,  or  of  equipment,  must 

321 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

be  charged  to  its  particular  fund.  The  total  for 
each  is  fixed  by  the  fiscal  authorities,  and  no  modifica- 
tion of  it  can  be  made  without  the  authorization  of  the 
body  which  originally  established  the  amounts.  But 
action  is  paralyzed  by  too  much  control.  This  method 
of  regulation  fixes  in  advance  the  number  of  em- 
ployees, the  rate  of  their  salaries  by  the  day,  and 
makes  any  increase  in  the  number  of  employees,  or 
any  modification  of  their  salaries,  impossible  without 
the  censorship  of  the  highest  city  officials.  As  a  result, 
inefficiency  is  not  penalized,  nor  is  efficiency  rewarded. 

The  municipality  generally  pays  from  20  to  50  per 
cent,  more  for  common  labor  than  does  the  contractor. 
The  work  hours  are  shorter  in  consequence  of  measures 
passed  either  by  the  state  or  by  the  municipality  for 
political  ends. 

Salaries  are  paid  regularly,  but  without  considera- 
tion for  special  skill  or  energy,  thus  inviting  ineffi- 
ciency. A  capable  workman  or  employee  will  natur- 
ally avoid  a  system  in  which  capacity  counts  for  little 
while  political  intervention  is  all  powerful. 

"When  an  employee,"  says  Benjamin  F.  Welton,  "can 
do  what  he  likes  and  snap  his  fingers  in  the  face  of  his 
superior  if  he  is  reprimanded,  the  efficiency  of  the  entire 
force  to  which  he  belongs  is  gone.  It  is  not  uncommon 
for  a  foreman  to  suspend  a  laborer,  request  his  discharge, 
and  then  be  instructed  to  reinstate  him  and  "leave  him 
alone."  After  such  a  performance  how  can  it  be  expected 
that  the  foreman  can  compel  the  obedience  of  the  re- 
mainder of  his  force  ?" 

322 


LABOR 

The  greatest  amount  of  lost  effort  comes  from  wast- 
ing time. 

There  has  been  Httle  attempt  made  to  compare  mu- 
nicipal with  private  labor  productivity.  Furthermore, 
municipal  records  are  not  to  be  depended  upon.  Fore- 
men will  exaggerate  the  favorable  results,  and,  what 
is  worse,  conceal  the  losses. 

The  system  of  reports  dealing  with  the  financial 
needs  of  an  enterprise  are  usually  made  out  without 
consideration  of  the  amount  of  work  turned  out.  In 
fact,  the  reports  do  not  even  accurately  reflect  the  con- 
ditions which  they  are  expected  to  make  clear.  The 
connection  between  results  and  expenditure  is  almost 
never  determined. 

Among  the  suggested  remedies  for  this  state  of  af- 
fairs are  to  be  found  :  An  effective  method  of  engag- 
ing employees;  introduction  of  strict  methods  of 
discipline  ;  great  latitude  in  the  discretionary  power 
of  the  department  concerned;  permission  to  punish 
negligence  and  laziness  and  to  reward  zeal.  But  all 
these  measures  are  incapable  of  fulfillment,  because 
they  provoke  accusations  of  favoritism  and  probably 
would  engender  it. 

Mr.  Welton  shows  how  economy  can  be  brought 
about  in  an  undertaking.  In  19 lo  the  Commissioner 
of  Accounts,  at  the  invitation  of  the  Borough  Presi- 
dent of  Manhattan,  undertook  the  reorganization  of  a 
part  of  the  maintenance  force  of  the  Bureau  of  Sewers. 
This  service  included  24  cleaners  and  38  horses  and 
carts,  divided  into  12  gangs  of  workmen,  each  with  its 
own  foreman.    The  cost  was  about  $4  per  cubic  yard. 

323 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

In  a  few  months  the  number  of  gangs  and  foremen 
was  reduced  from  12  to  4,  the  cleaners  from  24  to  16, 
the  horses  and  carts  from  38  to  14.  Production  was 
increased  100  per  cent.  ;  wages,  15  per  cent.  ;  the  aver- 
age cost  per  cubic  yard  was  reduced  from  $4  to  $1.45. 
The  net  result  was  an  increase  in  efficiency  of  275  per 
cent. 

But  can  reforms  giving  similar  results  be  made  gen- 
eral ?  Many  such  cases  do  not  destroy  the  viciousness 
inherent  in  the  general  system. 

10.  Emmanuel  Brousse  once  declared  that  the 
French  government  did  not  adopt  the  system  of  over- 
time for  extra  work  because  such  work  was  done 
during  the  ordinary  working  hours  of  the  depart- 
ment. 

One  department  head  answered  :  "If  I  did  not  have 
premiums  at  my  disposal,  the  work  could  not  be  done 
at  all.  The  majority  of  the  employees  never  come 
to  the  bureau,  and  those  who  do,  being  obliged  to  do 
the  work  of  the  others,  must  be  indemnified  for  the 
extra  work  they  do." 

I  know  the  danger  of  such  generalizations.  There 
are,  in  all  the  departments,  men  who  work,  but,  as 
Bugeaud  said,  these  are  always  the  ones  who  commit 
suicide.  Others,  on  the  contrary,  religiously  practice 
the  well-known  commandment:  "Never  do  to-day 
what  another  can  do  to-morrow." 

And,  not  only  is  the  work  to  be  gotten  out  of  a 
national  or  municipal  employee  or  laborer  below  par, 
he  has  also  all  sorts  of  resources  for  reducing  it  to  a 

324 


LABOR 

still  lower  grade.     Among  others  we  find  the  disease 
which  has  been  called  lab oro phobia. 

Among  the  municipal  employees  of  the  City  of 
Paris  the  number  of  sick  days  has  increased  as  fol- 
lows:^ From  1896,  when  an  account  of  these  ab- 
sences was  begun,  to  1908,  according  to  statistics  of 
the  Bureau  of  Public  Highways,  the  number  of  hours 
of  work  has  decreased  from  13,458,817  hours,  to 
12,992,718  hours,  or  a  difference  of  466,099  hours. 
The  number  of  hours  of  absence  on  account  of  illness 
has  risen  from  556,440  to  1,056,464,  or  a  difference 
of  500,024. 

"This  doubling  of  the  number  of  sick  days  within  a 
period  of  a  few  years  ;  this  characteristic  decrease  in  the 
productive  energy  of  thcj  worker — of  this  worker  who 
each  day  is  better  paid  and  less  worked  and  provided  with 
a  greater  number  of  rest  days — testifies  to  a  deteriora- 
tion in  the  ideal  of  loyal  service  which  the  Council  can- 
not afford  to  overlook." 

I  must  bear  witness  that  it  is  devoting  itself  to  the 
question,  and  that  the  number  of  sick  days  is  decreas- 
ing. From  8.27  per  cent.,  in  1907,  it  has  been  lowered 
to  6.44  per  cent.,  in  191 1. 

The  same  professional  malady  has  raged  with  in- 
tensity among  the  employees  of  the  government  rail- 
ways, according  to  the  report  of  P.  Baudin  on  the  sup- 
plementary credits  of  the  government  railways  for 
the  month  of  July,  19 12.  Here  is  the  effect  of  the 
measure  granting  full  pay  to  employees  reported  ill: 
In   1909  the  number  of   sick  days   was  474,000;   in 

*  The  report  of  M.  Dausset  on  the  budget  of  the  city  of  Paris, 
1912. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

1911  it  had  risen  to  656,000,  or  an  increase  of  182,- 
000  sick  days  in  two  years.  Out  of  67,967  employees 
36,816,  or  54  per  cent.,  were  rendered  incapable  of 
work  on  account  of  illness.  This  proportion  of  in- 
capacitated men  is  disquieting  only  from  the  point  of 
view  of  the  finances  of  the  railway  system  and  its 
defective  administration. 

Again,  while  only  a  part  of  the  employees  were  en- 
joying these  hours  of  leisure,  it  was,  of  course, 
necessary  to  increase  the  effective  force  by  7,440 
units,  representing  15,539,900  francs  of  added  ex- 
pense. 

II.  Even  in  a  small  country  like  Switzerland,  justly 
proud  of  its  lofty  public  morale,  the  same  phenomena 
occur. 

In  Switzerland  the  Federal  Council  modified  plans 
in  favor  of  the  Federal  railway  employees,  which  had 
been  carefully  w^orked  out  by  the  general  manage- 
ment, in  order  to  make  these  same  employees  addi- 
tional concessions;  and  these  concessions  have  been 
still  further  increased  by  the  Chambers.  Salaries  have 
been  raised  and  all  sorts  of  advantages  multiplied. 
Hours  of  labor  have  been  decreased,  and  all  without 
any  useful  result.^ 

The  day  on  which  the  French  government  bought 
the  Western  railway  augured  an  inevitable  strike  on 
the  railroad.  It  was  well  known  that  the  government 
had  been  unable  to  maintain  discipline  among  the  male 

'  Th.  Favarger,  Situation  des  Chemins  de  Fer  Fédéraux  en 
Suisse,  Journal  des  Économistes,  December,  1910,  Rapport  de  la 
Commission  du  Conseil  National,  1909. 

326 


LABOR 

and  female  employees  in  the  tobacco  factories.  It 
had  come  to  terms  with  the  employees  of  the  match 
factories  only  by  the  help  of  one  argument:  "Strike 
if  you  like;  there  is  more  profit  for  us  in  buying 
matches  abroad  than  in  manufacturing  them,"  It 
was  known  also  that  anarchy  was  rampant  among 
the  employees  in  the  navy  yards.  Nevertheless,  and 
with  such  experiences  behind  it,  the  government  dared 
to  assume  the  management  of  60,000  new  employees. 

To  bring  pressure  to  bear  upon  the  minister,  the 
general  manager  and  the  directors  of  the  various 
branches  of  the  railway  service,  the  railway  employees 
would  now  have  their  increased  number,  their  quality 
of  electors,  their  syndicalist  organization  and  their 
own  deputies,  anxious  to  obtain  office  by  the  help 
of  the  labor  vote.  How  could  the  general  mana- 
ger and  the  directors  of  the  different  branches  of  the 
service  be  expected  to  resist  this  pressure?  And,  if 
they  should  so  resist,  would  not  the  minister  be  the 
first  to  say:     "Don't  get  into  a  row"  ? 

The  employees  of  the  Western  railway  cherished 
the  most  extraordinary  delusions  concerning  what 
they  were  going  to  get  out  of  its  seizure  by  the  state. 
One  department  head  remarked  to  one  of  the  dispos- 
sessed private  owners  :  'T  have  had  only  the  pleasant- 
est  relations  with  you;  nevertheless,  I  cannot  hide 
from  you  the  fact  that  I  am  enchanted  with  this  pur- 
chase, because  my  power  of  appointment  will  be  there- 
by doubled." 

If  one  department  head  deluded  himself  in  such 
fashion  it  may  be  easily  judged  what  went  on  in  the 
minds  of  his  subordinates.     And  what  bitter  disap- 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

pointments  have  resulted  !  Why  does  not  the  state 
which  is  so  rich  give  everything  that  is  demanded  of 
it?  The  government  railway  was  the  starting  point 
of  the  strike  of  19 lo. 

As  an  illustration  of  this  attitude  of  the  whole  body 
of  employees  take  the  following  series  of  incidents  : 
M.  Renault,  an  employee  attached  to  the  main  office 
of  the  railway,  published  a  manual  of  sabotage,  in 
which  the  following  declaration  appears  : 

"We  must  choose  comrades  among  the  professional 
workmen  who,  on  account  of  their  familiarity  with  the 
work,  can,  by  a  single  blow,  put  out  of  commission  for 
a  number  of  days  the  equipment  indispensable  to  the 
operation  of  the  service  as  well  as  to  the  running  of  the 
trains." 

The  minister  called  together  a  committee  of  inves- 
tigation into  the  conduct  of  Renault,  composed  of 
ten  members  representing  the  management,  and  ten 
members  elected  by  the  employees  and  laborers,  under 
the  presidency  of  M.  Viénot,  assistant  manager  of 
the  company.  The  ten  members  representing  the  em- 
ployees drew  up  a  resolution  declaring  that  M.  Re- 
nault had  done  no  more  than  express  their  opinion. 

They  rejected  the  proposal  to  strike  the  name  of 
M.  Renault  ofï  the  list  of  employees,  while  the  ten 
members  representing  the  directorate  voted  in  favor. 
The  vote  of  the  chairman  decided  the  question.  If  not 
a  single  employee  had  taken  his  seat  the  result  would 
have  been  the  same.* 

^  Yves  Guyot,  Les  Chemins  de  Fer  et  la  Grève,  1911. 
328 


LABOR 

The  chief  weapon  of  the  employees  of  government 
undertakings  is  the  fear  which  they  inspire  in  their 
immediate  superiors  of  being  called  to  account  by  depu- 
ties and  senators,  together  with  the  influence  of  these 
same  deputies  and  senators  upon  their  colleagues  and 
upon  the  ministers.  Nor  is  the  use  of  this  weapon 
concealed. 

A  congress  of  railway  men  was  held  in  Paris  on 
the  2nd  and  3rd  of  April,  19 12,  presided  over  by  M. 
Barbier,  of  the  government  railway  system.  During 
the  course  of  the  discussion  another  employee  of  the 
government  railways,  M.  Leguen,  remarked  : 

"If  all  public  services  were  properly  organized  we 
should  be  forced  to  form  a  federation  of  all  the  em- 
ployees of  the  government,  when  we  would  become  an 
immense  force. 

"Our  syndicalist  action  upon  the  state  railroad  has 
already  been  recognized.  Nothing  is  done  without  noti- 
fying the  section  committee  concerned.  We  have  won  a 
footing  in  the  house.  Do  your  companies  allow  you  as 
much  ?    Just  this  foothold  alone  would  suffice," 

Nationalization  of  all  the  railways  was  voted  al- 
most unanimously  and  upon  the  spot.  It  was  decided 
that  action  should  be  begun  with  the  Orléans  road. 
Moreover,  the  congress  determined  to  do  its  utmost 
in  order  that  the  organization,  not  only  of  the  present 
state  system,  but  also  of  systems  to  be  acquired  in  the 
future,  should  insure  to  the  employees  themselves  a 
share  in  the  administration  and  management  to  which 
they  contend  they  have  a  right. 

329 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Laborophobia  has  been  raging  among  the  employees 
nf  the  government  railways,  and  is  becoming  still 
more  aggravated:  474,000  sick  days  in  1909;  656,- 
000  in  1911  ;  36,816  employees  out  of  67,967,  or  54 
per  cent.,  obtained  leaves  of  absence  with  full  salary 
under  the  same  pretext. 

The  employees  of  the  government  railways  do  not 
show  the  smallest  gratitude  for  the  concessions  made 
them.  Before  the  Congress  of  the  National  Associa- 
tion of  Railways  M.  Berthelot  declared  that  such  con- 
cessions had  been  obtained  "through  syndicalist  action 
and  the  strike."  ^ 

Under  the  system  of  automatic  promotion,  the  en- 
gineer found  guilty  of  the  wreck  of  Courville,  a  man 
who  had  been  repeatedly  punished  for  intoxication, 
has  been  promoted  to  a  higher  position.  Again,  the 
fact  that  a  man  like  M.  Goude,  now  deputy,  was  re- 
tained in  the  navy  yard  at  Brest,  is  another  clear 
proof  of  the  state  of  anarchy  which  exists  among  the 
employees  of  the  Navy.  Still  another  encouraging 
featuiL  in  connection  with  our  naval  employees  is 
the  fact  that  these  workmen,  who  live  only  for  and 
by  preparations  for  war,  are  peace  at  any  price  men. 
In  19 1 2,  during  the  discussion  regarding  the  naval 
program,  M.  Goude  demanded  that  the  number  of 
laborers  in  the  navy  arsenals  be  increased  ;  that  the 
number  so  increased  should  remain  fixed,  and  that 
armaments  be  diminished. 

The  following  story  was  told  me  a  few  years  ago 
by  a  naval  officer  of  high  rank  : 

^  Le  Temps,  April  4,  1912. 


LABOR 

"A  certain  laborer  employed  in  the  navy  yard  at 
Brest  presented  himself  with  all  formality  before  his 
commanding  officer.  He  gave  the  correct  military  salute, 
touching  his  cap  with  the  back  of  his  hand  with  his  open 
palm  toward  the  admiral.  Upon  the  palm,  however,  was 
written  in  large  letters  a  most  flagrant  personal  insult 
which  the  admiral  pretended  not  to  see." 

From  the  moment  that  the  salary  question  ceases  to 
be  regulated  by  net  cost  and  becomes  dependent  solely 
upon  the  amount  of  pressure  to  be  exerted  upon  repre- 
sentatives entrusted  wnth  the  distribution  of  the  public 
resources,  salaries  will  have  no  other  limit  than  the 
force  of  resistance  of  these  same  representatives,  or 
the  exhaustion  of  the  budget. 

In  1912  the  city  of  Paris  was  asked  for  an  increase 
of  the  so-called  residence  subsidy — an  additional 
amount  of  money  beside  the  regular  salary  to  partially 
cover  the  cost  of  rent — granted  to  the  teachers  of  the 
city.  Such  an  appropriation  would  involve  a  general 
increase  of  200  francs  for  each  member  of  the  entire 
teaching  force.  Several  other  concessions  were  also 
demanded,  which  would  require  a  modification  of 
the  law  of  July  19,  1889,  and  of  the  decree  of  April 
20,  1892.^  Let  me  quote  the  threatening  terms  in 
which  one  of  these  teachers — a  certain  M.  Escudié — 
addressed  the  Municipal  Council  in  the  Bulletin  de 
l'Association  des  Anciens  Élèves  de  l'École  Normale 
de  la  Seine: 

"In  the  four  months  allowed  the  Prefect  to  answer 
our  petition   it   is   incumbent   upon   the   department   of 

'  Report  of  M.  Rebullard,  Municipal  Council  of  Paris,  1912, 
No.  7. 

331 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

Education  and  the  Municipal  Council  to  prove  their  good 
will  toward  us  by  adopting  a  comprehensive  plan  of 
increase.  If  our  very  modest  demands  are  admitted,  in 
a  word,  if  every  instructor  is  given  the  immediate  cer- 
tainty of  seeing  his  situation  improved  before  the  age 
of  55  years,  this  campaign  will  utterly  cease.  But  at 
the  present  time,  and  I  insist  upon  this,  the  Department 
and  the  Municipal  Council  alone  have  the  power  to  put  a 
final  stop  to  further  action  on  our  part." 

In  1905,  following  a  disagreement  with  the  Federa- 
tion of  Friends  {Federation  des  Arnicales),  whose 
demands  they  judged  too  moderate,  the  Teachers' 
Union  was  organized.  It  is  certain  that  in  so  doing 
no  reference  was  made  to  either  the  letter  or  the 
spirit  of  the  law  of  1884.  Nevertheless,  on  Novem- 
ber 7,  1905,  the  Chamber  of  Deputies  decided  not  to 
prosecute  the  existing  union,  declaring  that  all  that  was 
necessary  was  to  forbid  the  formation  of  new  unions 
until  a  vote  had  been  taken  on  the  bill  concerning 
the  status  of  government  employees.  The  new  union 
paid  no  attention  to  anything  except  the  first  part  of 
this  decision,  and,  on  the  7th  of  November,  it 
launched  a  manifesto  declaring  that  its  members  wished 
to  become  associated  with  the  Workmen's  Exchange 
and  to  belong  to  the  General  Labor  Confederation. 
The  manifesto  concluded  with  these  words: 

"The  new  union  must  be  ready  to  furnish  a  basis  for 
future  autonomous  organizations  to  which  the  govern- 
ment will  commit  the  duty  of  managing,  under  its  and 
their  reciprocal  regulation,  a  socialized  public  service." 

33^ 


LABOR 

At  a  congress  held  at  Chambéry,  in  the  month  of 
August,  191 2,  50  unions  were  represented,  at  which 
the  principle  of  the  amalgamation  of  teachers  and  la-' 
borers  was  endorsed  and  the  following  sentiment  de- 
clared : 

"Our  relations  with  the  government  as  an  employer 
are  no  different  from  those  of  any  employee  toward 
his  employer,  and  we  ought  to  have,  as  against  our  em- 
ployer, the  same  rights  that  any  employee  has  as  against 
his.  Such  employees  have  their  unions  to  protect  them; 
therefore  we  ought  also  to  have  ours." 

From  the  standpoint  of  salary  a  "syndicalist  rate" 
ought  to  be  established,  declared  one  delegate  ;  and  the 
congress  so  voted.  The  suppression  of  any  method 
of  promotion  except  that  founded  on  length  of  service 
was  also  voted,  a  premium  being  thus  put  on  indiffer- 
ence and  inefificiency. 

Finally  the  Congress  resolved  upon  "an  effective 
representation  of  the  Teachers'  Union  at  the  next  con- 
gress of  the  General  Labor  Confederation,  at  Havre, 
in  order  to  emphasize  more  and  more  its  attachment 
to  the  organized  working  classes,"  ^  and  adjourned 
after  singing  the  "Internationale."  - 

Many  of  the  members  of  this  Congress  were  district 
councillors,  and  hence  representatives  of  the  majority 
of  their  colleagues,  thus  showing  how  far  they  were 
willing  to  go  in  taking  advantage  of  the  good  nature 
and  weakness  of  ministers  and  members  of  Parlia- 
ment. 


'  Le  Temps,  August  19,  1912. 
'The  Socialist  hymn. 


333 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Unfortunately  for  the  teachers  they  went  further 
than  the  Poincaré  ministry  was  wiUing  to  follow.  On 
the  reassembling  of  the  ministry,  on  the  22nd  of  Au- 
gust it  was  decided  to  dissolve  the  Teachers'  Union. 
The  representatives  of  the  union  have  declared,  how- 
ever, that  they  will  resist  dissolution. 

M.  Guist'hau  alone  has  submitted  his  case  to  the 
courts,  which  are  thus  required  to  decide  concerning 
the  legality  of  teachers'  associations.  While  await- 
ing the  decision  the  representatives  of  the  unions  de- 
fied the  minister,  and  their  general  secretary,  M,  Chal- 
opin,  went  to  preside  over  the  meetings  of  the  con- 
gress of  the  General  Labor  Confederation  held  at 
Havre. 

Up  to  the  present,  June,  19 13,  nothing  serious  has 
yet  been  done.  The  threat  alone  has  been  sufficient  to 
make  the  school  teachers  keep  the  peace  to  a  certain 
extent. 

Many  teachers  destined  to  form  the  manners  of  the 
new  generation  stand  in  great  need  of  reforming 
their  own.  But  is  it  upon  them  that  the  responsi- 
bility for  such  acts  as  those  just  described  above  should 
fall?  Should  it  not  rather  fall  upon  the  parrot-like 
training  of  the  normal  schools,  which  teaches  pupils 
to  recite  socialist  or  anarchist  formulas  as  they  recite 
phrases  from  their  text-books? 

The  Congress  of  Railway  Mechanics  has  put  on 
record  its  sympathy  with  the  teachers  by  voting  a 
resolution  "protesting  against  this  show  of  govern- 
mental despotism."  Afterward  its  delegates  presented 
themselves  before  the  minister  of  Public  Works,  who 

334 


LABOR 


was  weak  enough  to  receive  them,  according  to  the 
following  note,  published  in  Le  Temps  of  August  24: 

"The  delegation  put  numerous  questions  to  the  min- 
ister, especially  in  regard  to  the  reinstatement  of  em- 
ployees dismissed  during  the  strike  of  1910,  and  concern- 
ing their  eventual  reincorporation  in  the  state  railway 
system.  The  members  insisted  that  the  pensions,  allow- 
ances and  other  advantages  previously  granted  by  the 
railway  companies  to  these  dismissed  employees  be  re- 
computed in  conformity  with  the  provisions  of  the  laws 
of  1909  and  191 1. 

"The  minister  requested  the  delegation  to  formulate 
each  of  their  claims  in  writing,  promising  to  examine 
them  with  the  greatest  care." 

This  is  indeed  admirable  !  The  Railway  Department 
had  been  weak  enough  to  give  the  dismissed  employees 
pensions  to  which  they  had  no  right;  but  that  was 
not  sufficient.  They  wanted  more;  and,  when  their 
pensions  are  regulated  to  suit  them,  they  will  be  rein- 
stated into  the  government  railway  system,  where  they 
can  organize  strikes  at  their  ease,  while  saying  to  their 
comrades  :  "You  see,  we  have  everything  to  gain, 
and  nothing  to  lose,  by  a  strike!" 

Toward  the  beginning  of  19 12,  a  school  teacher, 
M.  Léger,  on  account  of  disciplinary  punishment 
meted  out  to  a  teacher,  threatened  his  immediate  su- 
perior. 

A  sub-agent  in  the  Postoffice,  M.  Bouderis,  brought 
before  a  council  of  discipline  to  be  dismissed  for  sign- 
ing a  placard  addressed  to  "the  Public,"  appealed  for 

335 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

protection  to  the  entire  body  of  government  employees. 
The  Bataille  Syndicaliste  claimed  that  he  could  not  be 
prosecuted  because  he  had  acted  as  secretary  of  a 
union. 

A  rural  guard,  named  Carré,  professed  anti-mili- 
tarism. If  his  actions  were  in  accordance  with  his 
talk  he  would  refuse  all  military  duty.  Nevertheless 
the  syndicalists  exclaim  :  "Don't  interfere  with  the 
employees  of  the  state  railroads,  who  are  teaching  the 
theory  of  sabotage." 

Under  the  name  of  Friendly  Association  (Associa- 
tion Amicale)  the  policemen  of  Paris  have  organized 
a  mutual  benefit  society,  the  officers  of  which  are  the 
higher  salaried  employees  of  the  Police  department — 
or  even  officials  not  belonging  to  that  organization. 
One  of  its  presidents  was  M.  Vel  Durand,  former 
prefect  of  the  department  of  the  North,  and  afterward 
councillor  of  state.  Every  year  the  prefect  comes  to 
preside  over  the  annual  meeting.  He  frequently  brings 
other  ministers  with  him. 

Under  the  circumstances  it  was  easy  to  foresee  what 
has  since  actually  happened.  A  movement  was  organ- 
ized in  the  association  to  transform  it  into  an  active 
"syndicat."  In  December,  1911,  they  presented  their 
claim:  Suppression  of  peace  officers,  suppression  of 
the  ordinances. 

The  ministers,  however,  realized  that  the  prefect  of 
police  could  hardly  take  orders  from  a  "syndicat"  of 
policemen.  Whereupon  the  "syndicat"  appealed  to  the 
Executive  Committee  of  the  Radical  and  Radical  So- 

336 


LABOR 

cialist  party,  whose  vice-president  accompanied  by  his 
colleagues  went  and  presided  over  a  meeting  of  police- 
men organized  against  the  government  at  a  time  when 
the  minister  in  power  was  representing  that  same  Radi- 
cal and  Radical  Socialist  party. 

At  the  National  Printing  Office  an  attempt  was 
made  to  form  a  limited  joint  stock  company,  with 
M.  Boudet  as  director.  As  it  had  been  published 
broadcast  that  he  belonged  to  the  General  Labor  Con- 
federation, he  hastened  to  correct  the  mistake.  He 
was  affiliated  with  the  twenty-first  section  of  the 
Livre,^  a  branch  of  the  Federation  of  the  Livre,  which 
was  represented  in  the  General  Labor  Confederation. 

Now  the  General  Labor  Confederation  has  for  its 
creed  :  Direct  action.  Consequently  the  Federation 
of  the  Livre  must  endorse  it. 

The  subordinate  officials  of  the  Postal,  Telegraph, 
and  Telephone  department  have  organized  many 
strikes.  They  have  dragged  their  chiefs  through  the 
mud  ;  they  have  launched  insults  against  the  ministers 
and  Parliament.  There  have  been  practically  no  re- 
taliations for  this  course  of  action  on  the  part  of  the 
government,  and,  if  there  have  been  any  victims,  they 
have  not  been  hurt  much. 

Indeed,  it  is  astounding  to  observe  the  utter  lack  of 
conscience  with  which  public  employees,  who  have 
begged  to  enter  the  government  service,  knowing  the 
conditions  which  they  were  accepting,  and  who  have 

^  An  association  of  employees  engaged  in  the  preparation  of 
the  Register  of  the  National  Debt. 

337 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

received  so  many  advantages  upon  which  they  had  no 
right  to  count,  have  thought  themselves  justified  in 
interrupting  this  service  at  their  pleasure.^ 

Such  or  such  an  employee  is  punished  because  he 
has  hurled  an  insult  or  a  threat  against  his  chiefs. 
He  appeals  on  the  spot  to  "liberty  of  opinion."  If  he 
considers  outrage  and  denunciation  opinions,  he  only 
proves  the  crying  need  of  reform  in  our  elementary 
instruction.  But  among  those  who  confuse  these  terms 
are  teachers  themselves. 

Governments  themselves  persist  in  destroying  all 
spirit  of  discipline  among  government  employees. 
In  Austria,  in  1911,  a  number  of  deputies  proposed  an 
increase  of  38,000,000  crowns  for  the  railroad  em- 
ployees. The  minister,  despite  his  earnest  desire  to 
satisfy  them,  could  agree  to  only  21,000.000  crowns. 

Then  what  happened  ?  The  discontented  employees, 
bitterly  resenting  this  grant  of  only  21,000,000  out  of 
the  expected  38,000.000  crowns,  and  well  aware  that 
there  are  more  generous  men  in  power,  brought  all 
possible  pressure  to  bear.  Meantime  they  made  threats 
against  those  deputies  who  were  not  disposed  to  keep 
on  giving  them  more. 

12.  Despite    facts    clearly    set    forth    by    Gustave 
Schelle,  who,  as  honorary  director  of  the  ministry  of 
Public  Works,  is  thoroughly  familiar  with  public  ac- 
counting, the  partisans  of  nationalization  and  munici- 
palization still  continue  to  talk  of  "industrial  budgets." 
Marcel  Sembat,  who  reported  on  the  postal,  tele- 
*  Yves  Guyot,  Les  Chemins  de  Fer  et  la  Grève,  191 1. 
338 


LABOR 

graph  and  telephone  budget,  declared  that  everything 
will  be  set  financially  right  on  the  day  when  this  bud- 
get becomes  an  industrial  budget.  Employees  of 
the  department  have  declared  on  divers  occasions 
that  the  budget  is  their  concern  solely  and  that  they 
have  a  right  to  its  profits.  But  how  about  the  losses? 
If  there  is  a  loss  will  these  employees  feel  themselves 
responsible  for  that  also? 

Numa  Droz,  in  a  pamphet  combating  the  purchase 
of  the  Swiss  railroads,  says:  "The  employees  will 
become  accustomed  to  considering  the  railways  as 
belonging  before  all  else  to  themselves,  as  a  field  cul- 
tivated by  them,  and  from  which  the  profits  should 
revert  to  them  in  the  first  instance." 

In  1909,  at  the  Federal  Congress  of  Mechanics  and 
Firemen,  one  delegate  cried  :  "The  government  as 
an  employer  is  incapable  of  managing  a  railway  sys- 
tem." This  opinion,  nourished  with  great  care  by 
Socialists  like  M.  Sembat,  and  by  the  partisans  of 
public  operation  generally,  is  proclaimed  with  the  great- 
est naïveté:  Any  undertaking  is  rightfully  the  property 
of  its  employees.  The  management  should  be  in  their 
hands.    They  will  operate  it  for  their  own  benefit. 

In  their  manifestos  and  in  their  platforms  Social- 
ists are  accustomed  to  refer  to  ministers  as  incompe- 
tents who  "have  never  done  a  hard  day's  work  with 
their  hands  in  their  lives."  In  other  words,  a  director 
of  Government  Railways,  for  example,  ought  to  be  an 
experienced  locomotive  engineer,  and  a  minister  of 
Public  Works  at  the  very  least  a  switchman,  in  order 
to  justify  their  right  to  their  positions. 

339 


WIIKRE   ANi:>    Win'    I'UlilAC   OWNERSHIP    HAS    FAILED 

By  a  decree  of  June  26,  191 1,  the  National  Printing 
Office  was  reorganized.  The  workmen,  however,  were 
dissatisfied.  They  had  worked  out  an  organization  of 
their  own.  They  wanted  a  labor  management,  but  with 
"due  respect  for  the  existing  autonomy  in  the  organi- 
zation of  each  public  department." 

During  a  meeting  at  the  Labor  Exchange  the  em- 
ployees of  the  National  Printing  Office  adopted  the 
following  resolution,  which  deserves  to  be  quoted,  be- 
cause it  shows  their  demands  in  all  their  crudity  : 

"In  consideration  of  the  fact  that  for  many  years  the 
management  has  not  been  able  to  operate  the  National 
Printing  Press  in  an  industrially  satisfactory  manner  ; 
that  the  attacks  on  our  establishment  before  Parlia- 
ment and  in  the  press  are  justified  by  the  disorganiza- 
tion of  the  various  departments,  and  by  the  general 
confusion,  with  fatal  results,  due  to  the  incompetence  of 
the  heads;  that  a  serious  prejudice  has  been- aroused 
against  the  government  among  the  employees  and  tax- 
payers by  the  discredit  passed  upon  the  establishment  ; 
and  that,  finally,  the  enormous  amount  of  general  ex- 
penditures is  the  sole  explanation  of  the  increase  of  net 
cost,  all  these  facts  have  persuaded  us  to  substitute  for 
the  present  administrative  régime  an  organized  labor 
administration  ;  to  replace  inefficient  and  disinterested 
officials  by  responsible  and  interested  producers  ;  to 
create  a  central  organization  coordinate  throughout  its 
parts  ;  to  give  to  the  undertaking  a  management  com- 
posed entirely  of  workers  ;  to  bring  to  the  attention  of 
the  minister  of  Finance  and  other  public  authorities  the 
said  plan  of  administration  ;  and  to  take  such  steps  as 
are  needed  to  bring  about  its  adoption." 

340 


LABOR 

Here  we  have  the  great  syndicalist  program  :  the 
employees,  officials,  and  subordinate  officials  of  the 
Postal,  Telegraph  and  Telephone  department  as  pro- 
prietors of  the  said  department,  and  the  laborers  of  the 
navy  yards,  with  M.  Goude  as  their  representative,  as 
proprietors  of  the  arsenals.  This  program,  attractive 
though  it  be  for  those  who  are  to  carry  it  out,  is 
scarcely  of  a  nature  to  increase  the  prestige  of  gov- 
ernment and  municipal  operation.^ 

Nor  does  it  imply  direct  public  operation.  It  is 
indirect  public  operation,  because  neither  government 
nor  municipality  will  manage  the  undertakings  of  the 
taxpayers,  for  whom  such  enterprises  were  created. 
The  employees  and  laborers  are  going  to  operate  them 
for  their  own  benefit. 

As  a  matter  of  fact,  the  whole  question  is  one  of 
putting  into  practice  Article  ii  of  the  program  of  the 
Congress  at  Havre,  in  1880,  drawn  up  by  Karl  Marx, 
and  presented  by  Jules  Guesde.-     It  is  thus  worded  : 

"The  annulling  of  all  contracts  alienating  public  prop- 
erty (banks,  railways,  mines,  etc.),  the  operation  of  all 
government  workshops  to  be  confided  to  the  men  who 
work  in  them." 

13.  From  a  distance  it  would  appear  that  such  a 
régime  might  work  admirably  ;  to  the  omnipotent  direc- 
tors, control;  to  the  heads  of  departments,  their  pre- 
scribed duties  ;  to  the  subordinate  officials,  the  head 
clerks,  the  executive  force,  each  his  special  task,  and 
so  the  wheels  would  go  smoothly  round.     Ministers, 

^  See  Appendix  "B." 

'  See  the  text  in  Sophismes  Socialistes  et  Faits  Économique, 
by  Yves  Guyot,  Paris,  Librarie  F.  Alcan. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

even  governments,  may  change  ;  the  active  management 
remains.  There  is  some  truth  in  this  conception,  and 
the  facts  have  proved  it. 

Only  all  management  must  be  carried  on  by  human 
beings,  and  human  beings  have  various  personal  idio- 
syncrasies. They  are  not  all  of  the  same  character, 
and,  in  all  departments,  there  are  sympathies  and  an- 
tipathies. There  are  managers  who  know  how  to  get 
work  done,  and  others  who  do  not.  There  is  routine 
and  negligence.  On  the  one  hand,  we  have  fear,  hate, 
and  mistrust  of  government  and  public;  on  the  other, 
dread  of  responsibility — "don't  raise  a  row."  Finally, 
there  is  "the  good  of  the  service,"  and  from  this  point 
of  view  the  undertaking  becomes  an  end  in  itself. 

The  partisans  of  government  ownership  of  the  rail- 
ways are  always  ready  with  this  postulate  :  "Why  do 
you  think  that  railways  belonging  to  the  government 
will  not  be  as  well  managed  as  private  lines,  when  the 
same  engineers  who  have  managed  the  one  are  to 
manage  the  other?" 

But,  as  M.  Duval-Arnold  ^  has  well  said  : 

"The  same  engineer  is  a  very  different  individual  ac- 
cording to  whether  he  is  accountable  to  a  private  em- 
ployer or  whether  he  is  employed  by  the  city  of  Paris  ; 
in  this  latter  case  his  work  is  hampered  by  the  constant 
effort  he  must  make  to  keep  out  of  trouble  with  the  Pre- 
fect, with  the  Council,  and,  above  all,  with  the  General 
Labor  Confederation  to  whom  the  employees  under  his 
orders  are  subservient." 

'  Société  d'Économie  Politique,  Journal  des  Économistes,  De- 
cember, 1912. 


LABOR 

I  have  heard  ministers  of  Public  Works,  on  the 
next  day  after  accidents,  say,  in  response  to  com- 
plaints :  "Yes.  things  are  going  badly.  The  man- 
agement of  the  government  railv^ays  is  deplorable. 
But  I  am  going  to  change  all  that!"  Then,  without 
warning  the  general  manager  of  the  Railways,  this 
minister  proceeds  to  dismiss  an  important  official  of 
the  government  railways,  to  whom  the  government 
straightway  awards  a  good  conduct  medal.  Under 
such  conditions  what  becomes  of  the  authority  of  the 
manager?  What  respect  can  he  inspire  in  his  em- 
ployees? Such  ministers,  instead  of  bringing  order 
into  the  government  railway  service,  are  playing  fast 
and  loose  with  anarchy. 

14.  Every  government  or  municipal  enterprise  is 
exposed  to  political  outbidding  of  one  politician  by 
another. 

Authority  slips  from  the  hands  of  the  management 
in  charge  to  the  deputies  and  municipal  councillors,  to 
whom  such  managers  feel  themselves  responsible,  and 
who  are  nothing  less  than  proxies  of  government 
employees  in  their  attacks  on  the  public  interest. 

Government  employees  become  electoral  factors,  so 
much  the  more  important  in  proportion  to  the  in- 
crease of  government  and  municipal  activities.  They 
become  the  actual  masters  of  those  to  whom  in  theory 
they  are  subservient.  This  danger  has  been  strongly 
felt  in  the  government  which  has  had  the  most  com- 
plete experience  with   Socialism — New  Zealand. 

Article  22  of  the  civil  service  regulation  reads: 

343 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"In  order  that  employees  of  every  grade  can  be 
counted  upon  to  render  loyal  and  efficient  service  to  the 
government,  it  is  necessary,  and,  moreover,  it  is  ex- 
pressly enjoined  upon  them,  to  take  no  part  in  politics 
other  than  through  their  votes  at  elections.  Each  viola- 
tion of  this  article  will  be  met  by  a  penalty  proportioned 
to  the  attendant  circumstances  of  the  act." 

The  railway  regulations  of  1907  confirm  this  order  : 

"Outside  of  their  vote  employees  must  take  no  ac- 
tive part  in  politics." 

A  workman  in  the  railway  shops,  J.  A.  McCal- 
lough,  during  a  meeting  of  the  Independent  Political 
Labor  League,  in  September,  1907,  introduced  a  reso- 
lution against  the  ministry  of  War,  and  was  dismissed. 
He  alleged  as  his  excuse  that  he  had  been  occupying 
himself  with  politics  for  a  long  time  without  anything 
having  been  said  about  it.  The  Chamber  almost 
unanimously  upheld  the  government,  while  regretting 
its  previous  tolerance.  The  following  comment  ap- 
peared in  the  Evening  Post:  "If  the  state  does  not 
govern  the  employees,  the  employees  will  govern  the 
state."  As  a  matter  of  fact,  the  political  power  of 
these  servants  of  the  government  is  astonishingly  great. 

In  New  Zealand  54,000  persons  are  directly  de- 
pendent upon  the  state  ;  with  their  families  they  form 
a  group  of  at  least  130,000  people.  Those  who  de- 
pend more  or  less  indirectly  upon  it  may  be  estimated 
at  a  still  higher  figure.  Altogether  such  individuals 
represent  more  than  a  quarter  of  the  entire  population. 

Delegates  to  the  British  Trade  Unions  Congress 
were  received  by  Mr.  Asquith,  February  15,  1912.   Mr. 

344 


LABOR 

Millard,  representing  the  employees  of  the  Postoffice, 
demanded  "that  they  be  authorized  to  exercise  all  the 
rights  of  citizens,  and  especially  to  be  allowed  to 
speak  for  or  against  any  candidate  in  the  legislative 
elections." 

Mr.  Asquith  observed  that  it  was  hard  to  see  why 
postal  employees  should  be  granted  a  privilege  refused 
to  all  other  government  employees.  An  employee  of 
the  Postoffice  might  vote  for  his  chosen  candidate,  but 
he  ought  not  to  be  a  member  of  an  electoral  commit- 
tee. 

Mr.  Millard  answered  that  it  was  precisely  this 
limitation  that  he  and  his  constituents  wished  to 
overcome.  Mr.  Asquith  asked  whom  he  was  repre- 
senting. 

"Postal  employees  of  the  lower  grades,"  was  the 
reply. 

Mr.  Asquith — "You  are  asking,  then,  that  Postoffice 
employees,  who  do  not  even  pay  the  income  tax, 
shall  have  a  preliminary  voice  in  the  elections?" 

In  Great  Britain  the  suppression  of  the  vote  of 
municipal  employees  has  been  demanded  a  number  of 
times.  In  the  Municipal  Trading  Report  of  1900  I  find 
the  following  declaration  of  Sir  Thomas  Hughes, 
twice  mayor  of  Liverpool  : 

"The  day  on  which  a  man  becomes  an  employee  of  a 
municipal  corporation  he  ought  to  have  no  further  voice 
in  the  choice  of  his  superiors." 

Mr.  O.  Smith,  town  clerk  of  Birmingham,  has  ex- 
pressed, although  with  some  caution,  the  same  senti- 
ments.    Alderman   Souther,  of  Manchester,  and  the 

345 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Lord  Mayor  of  Glasgow,  Air.  S.  Chisholm,  are  also 
of  this  opinion. 

The  suppression  of  the  political  and  electoral  rights 
of  all  the  employees  of  states  and  miuiicipalities  is  an 
indispensable  consequence  of  the  development  of  pub- 
lic operation.  Are  its  partisans  prepared  to  accept  such 
a  result? 

15.  Rules  for  the  model  government  employer: 

1.  The  state  should  be  a  model  employer,  and  its 
generosity  should  not  be  limited  by  any  consideration 
for  the  taxpayers.  Private  property  should  be  confis- 
cated for  the  sake  of  collective  ownership  of  all  the 
instruments  of  production,  distribution  and  exchange. 

2.  To  this  end  the  state  ought  to  employ  twenty 
employees  where  private  industry  would  use  but  ten. 

3.  It  ought  to  pay  100  francs  of  salary,  where  pri- 
vate industry  would  pay  50,  and  it  ought  to  supple- 
ment the  actual  salary  by  full  pay  for  rest  time  and 
vacations,  and  grant  numerous  other  advantages  in 
the  way  of  money  and  privileges  as  well,  without 
counting  free  lodging. 

4.  It  ought  to  insure  leisure  time  for  workers  by 
always  accepting  shorter  hours  of  work  than  private 
industry  is  prepared  to  do. 

5.  It  should  recognize  one's  right  to  be  lazy,  and, 
therefore,  it  ought  to  give  full  pay  to  all  those  af- 
flicted with  that  sacred  malady,  laborophobia. 

6.  Employees  should  be  irremovable,  but  they  should 
have  the  right  to  strike. 

7.  The  management  of  undertakings  belongs  only 

346 


LABOR 

to  the  competent,  or,  in  other  words,  the  employees 
of  the  service. 

8.  The  service  not  being  the  property  of  the  public, 
who  are  paying  for  it,  but  of  the  employees,  who 
ought  to  render  it,  its  profits  belong  to  them,  and 
ought  to  be  divided  among  them. 

9.  The  employees,  being  the  rightful  proprietors  of 
the  service,  ought  to  be  bound  by  no  other  rule  than 
to  make  use  of  it  for  their  own  best  interests. 

10.  The  model  government  employer,  confiding 
state  undertakings  and  their  operation  to  employees 
more  or  less  federated,  should  not  only  provide  an  ex- 
ample of  abdication  for  private  employers,  but  it 
should  force  them  to  it  by  the  above  rules,  which  are 
essential  conditions  of  direct  public  ownership. 


347 


CHAPTER   VI 
THE   CONSUMER 

The  Consumer  of  an  Extortionate  Monopoly  Is  Without  Re- 
dress.— The  Sole  Remedy  ;  To  Go  Without. — Water  in 
Paris. — Short  Allowance. — Government  Matches. — To- 
bacco.— Deceptions  in  Quantity  and  Quality. — The  Con- 
sumer a  Dependent,  Not  a  Contracting  Party. — The 
Postoffice. — The  Telephone. — The  Privilege  of  Pa- 
tience and  Good  Temper  Left  to  Telephone  Sub- 
scribers.— Subscription  Rates  in  France. — The  Tele- 
phone in  Great  Britain. — The  Prussian  Government 
Railway  Lines  Form  a  Trust. — Private  and  Municipal 
Employment  Bureaus. 

Under  a  régime  of  economic  liberty  the  manufac- 
turer and  the  merchant  need  the  consumer  more  than 
the  consumer  needs  them.  Under  a  monopolistic 
régime  the  consumer  has  but  one  duty — to  submit. 
He  has  but  one  other  recourse — to  go  without. 

Now,  if  there  is  any  service  which  ought  to  be  pro- 
vided on  a  large  scale  it  is  water.  Yet  nearly  every- 
where the  demand  is  greater  than  the  supply.  Paris 
has  always  lagged  behind.  There  has  scarcely  been  a 
summer  when,  under  one  pretext  or  another,  there  has 
not  been  an  interruption  in  the  water  service. 

We  have  become  used  to  being  told  that  our  faucets 
will  be  shut  off  during  the  night,  and  that,  if  we  have 
not  taken  proper  precautions,  we  run  the  risk  of  a 

348 


THE    CONSUMER 

temporary  water  famine.  If  a  fire  should  break  out 
we  would  not  have  even  a  pitcher  of  water  to  extin- 
guish it. 

At  the  same  time  official  warnings  are  incessant 
against  wasting  water — as  though  there  were  a  limit  to 
the  supply.  Here  we  have  the  very  quintessence  of 
monopoly.  Inactive  themselves,  the  municipal  council- 
lors content  themselves  with  interfering  with  the  free- 
dom of  action  of  others. 

The  employees  of  a  monopoly  through  all  the  de- 
grees of  the  hierarchy  know  their  power  and  use  it. 
We  have  already  seen  this  in  the  case  of  tobacco.^ 
But  let  me  illustrate  by  one  or  two  other  examples. 

All  those  who  must  use  government  matches  have 
complained,  not  alone  of  their  quality,  but  even  of 
their  quantity. 

Ten  centime  boxes,  which  bear  upon  their  wrapper, 
"Swedish  matches,  60  matches,"  are  passable,  al- 
though they  generally  contain  a  certain  number  of 
uninflammable  bits  of  wood.  But  lately,  in  the  coun- 
try, I  have  had  to  content  myself  with  boxes  at  5 
centimes,  bearing  a  label  :  "French  matches,  50 
matches." 

I  observe  that  the  différence  in  the  cost  of  the 
matches  is  offset  by  a  difference  of  10  matches  in  the 
cheaper  box,  or  17  per  cent.  less.  Matches  which 
will  light  are  the  exception. 

Now  please  notice  that  in  our  democratic  country 
these  cheaper  matches  are  provided  for  people  in  poor 

'  See  above,  book  2,  chapter  20. 

349 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

circumstances.  Yet  the  department  is  deceiving  them 
in  regard  to  the  quahty  of  the  goods. 

In  order  to  sell  its  matches,  the  government  relies 
on  wholesale  and  part  wholesale  merchants.  The 
first  must  buy  a  supply  at  a  minimum  sum  of  20,000 
francs,  and  the  second  at  2,000  francs.  The  commis- 
sion in  the  first  case  is  16  per  cent,  and  in  the  second 
14  per  cent.  The  total  profit  from  these  commissions 
is  not  realized  by  the  merchants,  because  they  are 
forced  to  pay  commissions  to  grocers  and  other  retail 
merchants  up  to  10  per  cent. 

Nevertheless,  small  as  they  were,  the  government 
determined  to  reduce  the  first-mentioned  commis- 
sions, which  it  considered  too  generous,  and  an  order 
of  December  30,  1911,  provided  that,  beginning  with 
February  i,  1912,  the  commissions  should  not  only  be 
lowered  to  15  and  13  per  cent.,  respectively,  but  also 
that  only  those  shall  be  considered  as  wholesale  mer- 
chants who  buy  20,000  francs'  worth  of  matches  at  a 
time,  and  at  least  125,000  francs'  worth  a  month. 
Against  this  last  condition,  however,  interested  parties 
protested,  and  the  director  general  of  indirect  taxes 
(Directeur  General  des  Contributions  Indirects)  in- 
formed his  departmental  heads  that  the  order  aforesaid 
would  be  modified  in  regard  to  this  special  point.  The 
number  of  middlemen  was  also  reduced  because,  by 
demanding  large  sums  from  a  few,  the  government 
could  get  along  with  a  much  smaller  number. 

Occasionally  those  who  are  curious  enough  to  in- 
vestigate will  find  that  they  are  being  deceived  as  to 
the  number  of  matches  in  the  boxes  sold  by  the  govern- 
ment.    Indeed,  after  a  number  of  experiences  of  this 

350 


THE   CONSUMER 

character,  I  have  become  convinced  that  the  depart- 
ment looks  upon  the  consumer  not  as  a  contracting 
party,  but  as  a  beneficiary. 

In  1906,  during  several  weeks,  if  not  several 
months,  the  situation  of  the  smoker,  as  described  by 
Le  Journal,^  was  about  as  follows  : 

"Yesterday,  as  I  entered  a  tobacco  shop,  a  customer 
was  asking  for  a  70-centime  green  package  of  cigarettes. 

"  *We  haven't  any,'  answered  the  dealer. 

"  'Then  give  me  a  pink  package  at  the  same  price.' 

"  *We  are  out  of  those,  too.' 

"The  astonished  customer  glanced  at  the  luxurious  fit- 
tings of  this  large  shop  on  the  Boulevard  and  inquired  : 

"  'How  do  you  happen  to  be  out  of  the  most  popular 
brands  ?' 

"  'Because  the  supply  in  the  warehouse  from  which 
we  order  our  tobacco  is  not  large  enough  to  meet  the 
demand.  One  day  it  is  one  kind  and  another  day  an- 
other which  I  am  refused,'  added  the  clerk,  shaking  her 
head. 

"As  an  actual  fact,  when  one  kind  of  tobacco  or  cigar- 
ettes is  manufactured  in  a  district,  the  warehouses  and 
their  customers,  the  retailers  in  that  particular  district, 
must  go  without  all  the  other  brands. 

"  *I  don't  know  where  all  this  will  end,'  continued  the 
clerk.  'First  customers  complain,  then  they  become  an- 
gry, and  we  can  do  nothing  about  it.  And  yet  it  is  too 
bad  to  lose  a  sale  through  the  fault  of  the  manufac- 
turer!'" 

The  article  terminates  thus: 
*July  30,  1906. 

351 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"Many  deceptions  are  complained  of,  such  as  cigar- 
ettes which  unwrap  the  moment  they  are  lighted,  over- 
moist  tobacco,  etc.  The  inequality  in  the  weight  of  the 
packages  is  especially  astonishing. 

"One  retailer  weighed  a  certain  number  of  packages 
of  ordinary  tobacco  costing  50  centimes.  Instead  of  the 
regulation  weight  of  40  grams,  from  32  to  35  grams 
were  found.  It  is  only  fair  to  add,  however,  that  there 
were  a  few  weighing  50  grams.  The  purchase  of  a 
lo-sou  package,  therefore,  becomes  a  sort  of  lottery.  This 
state  of  affairs  occurs,  it  seems,  because  there  is  not  time 
to  weigh  the  packages  in  those  pretty  little  patent  scales 
which  are  so  successful  at  world  expositions,  but  of 
which  there  are  altogether  too  few  in  the  tobacco  fac- 
tories." 

Five  years  after  the  above  article  was  written  I 
read  in  the  Figaro  of  August  20,  1912: 

"We  mentioned  day  before  yesterday  the  case  of  a 
user  of  'mild  tobacco'  from  whom  was  demanded  the 
sum  of  I  franc  for  a  certain  green  package  which  bore, 
on  the  label,  80  centimes.  'That  is  the  old  label,'  was  the 
scornful  answer  to  the  remonstrance  of  the  customer." 

"The  self-sufficience  of  the  state  as  a  merchant,  and 
especially  a  tobacco  merchant,  is  manifested  in  a  number 
of  other  ways.  One  of  our  subscribers,  a  well-known 
business  man,  from  the  district  of  the  Seine  writes  us  : 

"'I  am  a  smoker  (unfortunately),  but  I  can  only 
smoke  Maryland,  which  comes  wrapped  in  yellow  paper 
at  I  franc  for  40  grams.  For  some  time  now  I  have 
been  losing  three  packages  out  of  five  because  the  major- 
ity of  the  packages  of  Maryland  contain  caporal  supé- 
rieur, a  tobacco  so  strong  that  I  cannot  smoke  it.  In  ad- 
dition to  the  total  loss  of  the  package,  which  I  give  away 

352 


THE    CONSUMER 

to  people  who  can  endure  this  tobacco,  I  am  cheated  in  re- 
gard to  the  price,  since  a  package  of  caporal  supérieur  is 
sold  for  only  80  centimes  when  it  comes  in  blue  packages, 
and,  therefore,  I  am  paying  i  franc  for  the  same  tobacco 
in  a  yellow  wrapper.' 

"  'If,  by  chance,  I  get  packages  which  really  contain 
Maryland,  I  never  get  the  same  tobacco.  Sometimes  it 
is  light,  sometimes  it  is  brown,  often  it  is  as  black  as  the 
ace  of  spades. 

"  'I  can  show  you  packages  of  Maryland  which  con- 
tain nothing  but  caporal.  .  .    '  " 

"What  merchant  would  dare  to  use  his  customers 
in  such  a  way?"  asks  Figaro. 

No  private  merchant,  certainly,  because  the  dealer 
who  calls  down  upon  himself  the  wrath  of  his  cus- 
tomers is  certain  to  be  ruined.  The  government,  how- 
ever, can  well  afford  to  disregard  its  customer,  the 
public,  whom  the  tobacco  monopoly  has  placed  in  its 
power. 

Sometimes,  as  in  the  case  that  I  have  just  quoted, 
there  is  more  than  mere  disregard  of  a  customer,  there 
is  downright  cheating  as  to  the  quality  of  the  mer- 
chandise sold.  Such  an  act  would  expose  a  private 
individual  to  civil  damages  and  even  severer  penalties. 
A  government  can  commit  such  an  ofifense  with  im- 
punity, for  it  does  not  consider  that  it  is  under  any 
obligation  to  the  consumer. 

Service  order  No.  590,  issued  with  the  best  inten- 
tions by  the  postal  authorities,  illustrates  the  above 
fact  with  amusing  naïveté  : 

353 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"On  account  of  the  very  considerable  increase  in  traffic 
in  certain  sections  during  the  summer  season,  it  is  not 
always  possible  to  keep  to  an  absolutely  normal  course 
in  respect  to  correspondence  of  all  kinds,  despite  rein- 
forcements to  the  overburdened  service.  This  situation 
threatens  to  become  still  further  aggravated  this  year,  on 
account  of  the  suppression  of  a  very  great  number  of 
temporary  positions  outside  the  regular  stafif  which  were 
formerly  distributed  among  the  different  districts  during 
the  months  of  July,  August,  and  September.  There  is 
thus  cause  to  fear  that  under  these  conditions  letters 
which  ought  always  to  be  transmitted  regularly  will  be 
delayed  in  distribution.  With  a  view  to  offsetting  this 
state  of  affairs,  it  would  seem  expedient  to  devise 
methods  of  causing  the  public  the  least  possible  incon- 
venience. 

"In  order  to  attain  this  object  groups  of  volunteers  will 
be  organized  upon  whom  we  may  call,  during  spare  time 
with  pay,  to  sort  out  mail,  the  distribution  of  which  can 
be  delayed  without  undue  inconvenience,  viz.,  postal  cards 
and  printed  matter." 

Article  21  of  the  decree  organizing  the  postal  service 
declares  that  neither  the  department  nor  its  employees 
can  be  held  responsible.  Articles  1382  and  1384  of  the 
civil  code  are  not  applicable  to  them.  Article  22  ex- 
pressly stipulates  that  the  Postoffice  cannot  be  held 
accountable  for  the  security  of  private  mail. 

In  1905,  on  returning  from  the  United  States,  I  re- 
discovered in  Paris  all  the  joys  of  the  government 
telephone.  I  rang  up  Central.  At  the  end  of  one  or 
two  minutes  there  was  a  response  of  "Number, 
please."     Then  I  stood  and  listened  to  calls  for  other 

3,54 


THE   CONSUMER 

numbers,  private  conversations,  etc.,  while  waiting  for 
the  operator  to  condescend  to  inform  me,  "They  do 
not  answer,"  in  regard  to  parties  whom  I  knew  had 
permanent  attendants  at  the  telephone.  Or  perhaps  I 
would  hear  the  refrain  "busy,"  a  statement  which,  of 
course,  could  only  be  verified  afterward.  I  ventured 
to  protest.  Instead  of  being  rewarded  for  patience  I 
was  penalized  for  15  days.  No  one  could  reach  me, 
nor  could  I  telephone  anyone.  Finally,  the  department, 
tormented  by  the  subscriber  who  complained  so  per- 
sistently, advised  me  to  "Go  and  see  the  Gutenberg 
exchange."  I  went  to  see  the  Gutenberg  exchange, 
and  there  I  described  the  system  in  the  United  States, 
where,  in  New  York,  even  during  the  busy  hours,  you 
can  get  your  party  almost  instantly. 

"  'But  what  can  you  expect?'  said  the  official  who  ac- 
companied me,  and  whom  I  happened  to  have  met  in  New 
York; "they  have  private  companies  in  New  York.' 

"  'We  won't  quarrel  on  that  point  ;  but  the  fact  re- 
mains that  these  private  companies  accomplish  more 
than  our  government  does.' 

"  'It  would  cost  us  80,000,000  francs  to  introduce  such 
a  system.' 

"  'Isn't  that  a  slightly  exaggerated  figure?' 

"  'We  are  four  years  behind  the  times,  and  yet  you 
complain  when  you  have  to  wait  five  minutes.  You  can 
see  for  yourself  how  unreasonable  you  are.'  " 

It  was,  of  course,  perfectly  evident  that  it  was  all 
my  fault  as  well  as  that  of  all  the  other  telephone  sub- 
scribers who  believe  that  the  service  ought  to  be 
prompt. 

355 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

In  France,  at  any  rate,  the  telephone  is  in  league 
with  the  medical  fraternity  and  the  pharmacists,  be- 
cause it  is  bound  to  bring  on  neurasthenia  in  all  those 
who  have  anything  to  do  with  it.  Presumably  the  Gov- 
ernment is  encouraging  medical  consultation,  the  sale 
of  bromide  of  potassium,  and  patronage  of  certain  hot 
springs. 

At  various  times  I  have  been  able  to  demonstrate 
the  absence  of  responsibility  which  especially  charac- 
terizes government  administration. 

You  follow  religiously  the  directions  prescribed  by 
the  telephone  regulations  in  asking  for  the  manager. 
At  the  psychological  moment  the  operator  cuts  off 
the  connection.  You  may  remain  in  the  booth  for  an 
hour  without  obtaining  an  answer.  But  let  us  sup- 
pose that,  as  a  great  concession,  you  do  get  a  manager. 
The  lady's  first  impulse  is  to  put  you  in  the  wrong. 
She  forces  you  to  submit  to  an  interrogatory,  from 
which  she  invariably  concludes  that  if  you  have  rung 
too  long  without  any  answer;  if  you  have  been  re- 
fused an  answer  after  a  call  which  has  lasted  20  min- 
utes ;  if  there  has  been  a  systematic  refusal  to  give  you 
any  connection  at  all;  if  your  wire  was  labeled  "busy" 
when  it  was  not,  you  yourself  are  the  sole  offender. 

If  you  ask  for  the  district  superintendent,  the  first 
impulse  of  that  personage  also  is  to  protect  his  admin- 
istration. He  is  far  less  anxious  to  account  for  the 
facts  than  to  prove  to  you  how  culpable  you  are. 

Finally,  if  your  guilt  is  not  clearly  established,  the 
fault  is  laid  to  the  instrument.  An  electrician  will 
speedily  appear  at  your  home  to  repair  your  telephone. 

356 


THE    CONSUMER 


"The  apparatus  is  out  of  order?" 
"No." 


He  smiles,  but  he  makes  a  semblance  of  fixing  some- 
thing. He  is  an  accomplice  of  the  operator,  the  man- 
ager and  of  the  department  at  large,  against  the  sub- 
scriber. 

If  he  were  to  act  otherwise,  his  existence  would  be 
rendered  intolerable. 

At  last  you  go  still  higher  up.  An  inspector  comes 
to  see  you  at  the  end  of  fifteen  days,  and  proves  dog- 
matically that  whatever  is,  is  right.  As  for  responsi- 
bility, no  one  ever  acknowledges  any.  It  is  either  the 
apparatus  or  the  subscriber  who  is  at  fault — unless  it 
be  Parliament,  which  has  not  voted  the  necessary  ap- 
propriations. 

But  the  department  is  capable  of  going  still  further. 
It  presumes  to  suspend,  on  its  own  authority,  the 
service  of  certain  subscribers  with  whom  it  is  at  odds. 
It  arrogates  to  itself  the  right  of  punishing  any  indi- 
vidual who  has  paid  for  the  privileges  of  the  telephone. 

Any  telephone  subscriber  who  desires  to  socialize 
railways,  banks,  insurance,  alcohol,  sugar,  mines, 
petroleum,  etc.,  is  simply  demonstrating  a  natural  lean- 
ing toward  martyrdom.  If  he  has  not  such  an  inclina- 
tion he  is  at  least  incapable  of  understanding  the  rela- 
tion of  cause  and  effect.  He  refuses  to  be  taught  by 
experience. 

When  an  individual  hands  over  money  to  another 
individual,  in  order  that  the  latter  may  place  at  his 
disposal  the  use  of  any  service,  he  should  have  the  free 
use  of  such  service.     If,  on  the  other  hand,  an  indi- 

357 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

vidual  accepts  a  remuneration  for  rendering  a  service 
which  he  does  not  render,  he  acquires  the  reputation 
of  a  man  with  whom  it  is  not  safe  to  do  business,  be- 
cause he  does  not  hold  to  his  contract.  In  a  word, 
he  would  be  discredited.  In  open  competition  his  cus- 
tomers would  turn  from  him  and  go  to  his  rivals.  Or, 
if  self-interest  alone  were  not  strong  enough  to  compel 
him  to  fulfill  his  obHgations,  the  courts  would  know 
how  to  force  him  to  do  so  by  subjecting  him  to  severe 
penalties. 

The  case  of  the  government  is  altogether  dififerent. 
But  at  least,  when  it  has  been  paid  for  certain  services, 
it  should  perform  them  as  faithfully  as  an  individual 
would  do.  The  following  relatively  recent  occurrence 
proves  that  the  French  Government  at  any  rate  feels 
itself  under  no  such  obligation. 

The  interurban  telephone  is  very  convenient  if  the 
residents  of  the  localities  so  connected  can  succeed  in 
getting  into  communication  with  each  other.  When 
there  was  only  one  telephone  line  between  Paris  and 
Lille,  satisfactory  communication  was  practically  out 
of  the  question.  But  the  Chamber  of  Commerce  of 
Lille  was  and  is  both  wealthy  and  prosperous.  There- 
fore, it  said  to  the  government  :  "We  are  going  to 
pay  you  for  the  installation  of  two  additional  lines." 
The  government  accepted  the  offer.  But  even  with 
the  two  additional  lines,  users  wishing  to  be  connected 
had  to  submit  to  long  and  exasperating  delays. 

Again  the  Chamber  of  Commerce  proposed  to  the 
minister  :  "We  are  ready  to  pay  for  still  another  addi- 
tional line."  The  government  again  accepted.  Com- 
munication was  scarcely  more  prompt. 

358 


THE    CONSUMER 

The  Chamber  of  Commerce  paid  successively  for 
the  installation  of  two  more  lines,  so  that  in  1907 
Lille  was  connected  with  Paris  by  six  telephone  lines. 
Therefore  Lille  may  be  said  to  have  made  considerable 
sacrifice  in  order  to  insure  telephonic  communication 
with  Paris.  But  did  it  get  it?  No,  for  the  state  has 
continued  to  interfere. 

In  the  case  of  strikes,  like  that  at  Pas-de-Calais  in 
1906,  there  has  been  complete  suppression  of  private 
telephone  communication.  "The  rights  of  individuals 
must  be  considered  after  the  necessities  of  the  state." 
This  doctrine  is  all  right  so  far  as  it  goes,  but  ought 
not  such  necessities  to  have  an  end?  And  has  public 
interest  really  demanded  the  suppression  of  telephonic 
communication  between  Paris  and  Lille? 

There  has  been,  as  a  matter  of  fact,  no  occurrence 
whatever  which  could  make  it  necessary  for  the  state 
to  monopolize  several  of  these  lines;  moreover,  in  the 
month  of  June,  1907,  there  were  no  strikes  on  any  of 
the  lines.  Yet,  when  a  connection  was  called  for,  there 
came  the  same  old  answer  :    "The  line  is  busy." 

"How  many  lines  ?" 
"Three  !" 

"And  the  three  others?  Why  are  they  not  working? 
Are  they  being  repaired?" 


No,  but  the  prefects,  the  sub-prefects,  the  em- 
ployees of  the  prefecture  or  of  the  various  depart- 
ments were  using  the  other  lines.  Public  officials  can- 
not wait,  and  therefore  they  press  into  their  service  a 
number  of  the  wires  paid  for  by  the  Chamber  of  Com- 

359 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

merce  at  Lille  in  order  to  insure  quick  communica- 
tion with  merchants  and  manufacturers. 

This  is  a  flagrant  example  of  government  methods 
when  it  is  administering  something.  The  officials  are 
convinced  that  they  represent  higher  interests  ;  and,  by 
an  often  unconscious  deviation  from  strict  honesty, 
they  acquire  the  habit  of  covering  with  this  excuse 
acts  which  have  nothing  in  common  with  public  service. 
In  any  case,  they  consider  that  their  business  must  al- 
ways come  first,  and  by  virtue  of  this  conviction  they 
extend,  as  in  this  particular  case,  the  government  pre- 
rogative over  facilities  which  in  truth  were  not  estab- 
lished by  the  government  and  do  not  belong  to  it.  I 
hope  that  by  this  time  this  condition  of  afïairs  has 
been  somewhat  improved. 

Moreover,  while  the  state  is  demonstrating  this  self- 
complacent  attitude  toward  the  public,  it  demands  the 
utmost  deference  on  the  part  of  subscribers.  At  the 
slightest  act  of  disrespect,  it  constitutes  itself  at  one 
and  the  same  time  legislator,  judge  and  executioner 
for  the  punishment  of  the  offender,  as  in  the  case  of 
Mile.  Sylviac. 

The  department,  in  order  to  punish  her  for  having, 
as  it  declared,  addressed  a  telephone  operator  offen- 
sively, deprived  her  of  the  use  of  the  telephone  for  sev- 
enteen days.  Meanwhile  her  subscription  ran  on,  and 
thus  the  lady  was  paying  for  a  service  which  was  being 
refused  her. 

She  summoned  the  minister  responsible  for  the  de- 
partment concerned  to  appear  in  court,  where  she  de- 
manded to  be  at  least  reimbursed  for  her  subscription 
during   the   seventeen    days    when    she    was    refused 

360 


THE   CONSUMER 

service.  In  the  case  of  a  private  company  she  might 
have  demanded  damages  in  addition  and  the  judges 
would  have  decided  in  her  favor. 

But  the  government  is  not  subject  to  judicial  decree 
like  all  the  rest  of  the  world,  and  it  has  all  sorts  of 
defenses  behind  which  to  shelter  itself  against  indi- 
viduals. It  declared  the  court  incompetent  to  decide 
the  question,  and  the  court  duly  acknowledged  its  lack 
of  jurisdiction. 

The  Council  of  State,  however,  the  final  court  of 
appeal,  did  not  admit  such  a  plea,  and  we  congratulate 
it.  It  decided  that  the  government,  as  manager  of  the 
telephone  service,  is  a  responsible  agent  and  is  subject 
to  the  jurisdiction  of  the  civil  courts. 

But  the  telephone  department,  instead  of  submit- 
ting, set  up  a  new  difficulty.  It  declared  that  the  case, 
as  concerned  with  taxes,  must  be  decided  not  in  open 
court,  but  on  briefs,  according  to  the  procedure  of  the 
judicial  courts,  under  the  old  political  régime.  Ulti- 
mately the  case  was  decided  against  Mile.  Sylviac. 

Evidently  subscribers  to  the  telephone  have  no  other 
rights  or  privileges  than  to  be  patient  and  keep  their 
temper. 

Telephone  subscription  rates  are  extremely  high  in 
France.  In  1907  M.  Gourju,  a  senator,  complained 
of  the  high  rate  which,  at  Lyon,  was  300  francs.  That 
city  has  3,400  subscribers.  If  the  number  of  its  sub- 
scribers were  in  proportion  to  those  of  the  five  most 
important  cities  of  Switzerland,  viz.,  Geneva,  Lucerne, 
Berne,  Zurich  and  Basle,  it  should  have  25,000. 

The  assistant  secretary  of  state  for  the  Postal,  Tele- 
graph and  Telephone  department  has  attempted  to  ex- 

361 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

plain  away  the  high  rate  and  the  absurdity  inherent 
in  the  fact  that  400  francs  must  be  paid  in  Paris,  300 
francs  in  Lyon,  and  200  francs  in  Marseilles,  at  the 
same  time  asserting  that  the  rate  cannot  be  lowered. 
Why?    Because  there  would  be  too  many  subscribers. 

Under  a  system  of  free  competition  the  producer 
seeks  to  extend  his  clientele  indefinitely.  A  govern- 
ment monopoly  looks  for  an  advantage  in  restricting 
the  number  of  its  users  and  in  the  elevation  of  prices. 
The  answer  of  the  assistant  secretary  of  state  only 
goes  to  confirm  the  general  truth  of  this  rule.  The 
sole  thought  of  the  Telephone  department  has  been  to 
prevent  an  increase  in  the  number  of  subscribers. 
Every  subscriber  who  has  dropped  out  has  been  given 
a  hearty  god-speed.  Each  new  subscriber  is  an  enemy. 
One  minister  was  imprudent  enough  to  promise  a  re- 
duction in  rates  from  400  to  300  francs.  What  would 
become  of  the  service  if  the  promise  of  the  budget  had 
been  kept?  The  courageous  minister  had  neglected 
to  consult  existing  possibilities  ;  therefore  the  rate  has 
been  maintained  at  the  same  figure  down  to  the  present, 
and  the  fear  of  the  subscriber  must  still  persist,  because 
there  are  no  more  suggestions  of  rate  reduction. 

And,  anyway,  how  could  the  department  solicit  new 
subscribers  when  it  is  unable  to  assure  service  to  its 
present  subscribers? 

As  a  matter  of  fact  the  department  has  not  the  neces- 
sary equipment.  As  a  last  resort  there  are  appropria- 
tions. But  even  when  these  shall  have  been  obtained, 
the  department  will  still  find  itself  in  arrears,  and,  as 
for  a  reduction  in  the  rate,  it  will  not  make  one  for 
fear  of  an  increase  in  the  number  of  subscribers. 

362 


THE    CONSUMER 

Neither  does  the  Telephone  department  make  any 
effort  to  give  the  piibHc  maximum  service  at  minimum 
cost.  Instead  it  restricts  the  service  and  pleads  expense 
as  its  defense  against  the  influx  of  demands  for  tele- 
phone service.  Indeed,  one  senator  has  gone  so  far  as 
to  say  that  the  postal  and  telegraph  service  in  France 
is  worse  than  that  in  any  foreign  country.  But  this 
is  too  complete  a  generalization.  In  most  countries  it 
is  certainly  worse  than  in  France.  If  the  assistant 
secretary  of  state  had  returned  a  similar  answer  to  his 
critic  he  would  have  been  in  the  right. 

But  not  at  all.  He  must  generalize  in  his  turn,  and 
therefore  he  exclaims:  "I  cannot  allow  it  to  be  said 
that  the  postal  and  telegraph  service  is  inferior  in 
France  to  that  of  foreign  countries." 

The  telephone  service  was  and  is  still  very  much  bet- 
ter in  Switzerland,  in  Belgium  and  in  the  United 
States  than  in  France.  When  the  telephone  service  of 
Great  Britain  was  transferred  from  private  manage- 
ment to  that  of  the  postmaster  general,  Lord  Daven- 
port, director  of  the  Port  of  London,  in  a  letter  pub- 
lished in  the  Times  of  February  12,  1912,  complained 
that  "the  telephone  service  has  become  impossible  and 
commerce  is  suffering  in  consequence."  The  Post- 
master General  did  not  deny  the  accusation.  On  the 
contrary,  he  contented  himself  with  saying  that  "the 
difficulties  in  London  are  those  found  in  all  large  cities, 
and  the  subscribers  can  be  certain  that  the  department 
is  doing  its  best."  ^ 

But,  as  the  Times  has  observed,  state  operation  of 
the  telephone  has  effected  a  change  for  the  worse  in 

'  See  Appendix  "C." 

363 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  situation  of  the  subscribers.  When  they  were  de- 
pendent upon  the  National  Telephone  Company,  the 
complaints  of  subscribers  did  not  go  to  the  bureau 
against  which  they  were  made,  but  directly  to  the 
management  of  the  company.  Forms  were  made  out 
which  could  be  addressed  to  the  management,  and  the 
effect  of  these  was  admirable.  The  operator  knew 
that  any  complaint  would  be  followed  by  a  thorough 
investigation.  The  government  suppressed  these  com- 
plaint forms  and  replaced  them  by  a  letter.  This  letter 
has  proved  utterly  ineffective.  (The  Times,  February 
13-  1913-) 

Social  and  municipal  theorists  are  constantly  receiv- 
ing flat  contradictions  to  their  assertions  regarding  the 
value  of  institutions  fostered  by  them. 

Sometimes  the  consumers  of  a  government  enter- 
prise stand  in  the  light  of  a  privileged  class,  but  this 
is  always  a  precarious  position,  because  it  is  not  based 
upon  contracts  mutually  agreed  to  and  the  infringe- 
ment of  which  may  be  punished  like  that  of  any  private 
contract. 

In  1903  the  Belgian  Socialists  boasted  of  the  good 
fortune  of  those  who  patronized  the  Saar  coal  mines 
belonging  to  the  Prussian  government.  Paul  Trasen- 
ster,  Belgian  deputy,  proved,  however,  that  such  eulo- 
giums  were  not  merited.  Later  the  Chamber  of  Com- 
merce at  Saarbriick  brought  to  light  facts  which 
completely  supported  the  deputy's  contention.^  More- 
over, in  its  report  of  1903,  the  Chamber  reproached 
the  management  of  the  fiscal  mines  with  having  pre- 

'  Organe  Industriel,  of  Liège,  August  i,  1903. 


THE    CONSUMER 

vented  any  relief  to  the  iron  ore  industry  by  levying 
exorbitant  rates  during  periods  of  depression. 

When  the  Saar  mines  passed  into  possession  of  the 
Prussian  state,  about  1863,  it  was  expressly  understood 
that  every  citizen  should  have  the  right  to  buy  coal. 
But  the  management  of  the  mines,  instead  of  hold- 
ing the  balance  even  between  all  the  coal  dealers  of 
the  district,  granted  a  veritable  monopoly  for  the  sale 
of  it  in  France  to  two  firms,  by  granting  them  a  rebate 
of  0.50  marks  per  ton.  For  itself  it  reserved  the  ex- 
clusive monopoly  of  supplying  iron  and  steel  works, 
railways  and  gas  companies. 

The  rest  of  the  merchants  of  Saarbriick,  who  help  to 
supply  the  French  market,  have  been  obliged  to  get 
their  coal  in  Belgium  and  from  the  district  of  La  Ruhr, 
and  have  been  the  most  active  agents  in  the  competition 
of  coal  and  Belgian  compressed  fuel  with  the  Saar  coal 
in  Eastern  France. 

Edgard  Milhaud  quotes  the  following  passage  from 
a  study  of  the  German  trust  made  by  Arthur  Raffalo- 
vich  in  1909.^ 

"One  of  the  most  serious  reproaches  that  can  be 
brought  against  the  trusts  is  that  of  preventing  the  full 
and  free  utilization  of  the  sources  of  production.  From 
1906  to  1908  the  Rhenish- Westphalian  coal  company 
produced  67.63  per  cent,  and  55  per  cent,  only  of  the 
visible  supply.  The  potash  trust  succeeded  in  utilizing 
33  per  cent,  of  the  capacity  of  the  various  producing 
centers,  when,  if  their  capacity  had  been  fully  developed, 
the  sale  price  would  have  been  reduced  45  per  cent." 

^L'Économie  Publique,  November,  191 1. 

365 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Then  he  concludes: 

"Such  are  the  new  economic  methods  introduced  by 
monopoHes  either  national  or  international." 

This  monopoly  is  under  the  protection  of  the  gov- 
ernment. Edgard  Milhaud  opposes  to  it  "public  opera- 
tion as  a  superior  economic  tenet."  But  public  opera- 
tion is  nothing  but  a  more  complete  monopoly;  and, 
"far  from  freeing  the  productive  forces  thus  chained 
and  bound,"  it  would  only  add  a  thick-headed  tyranny 
both  scornful  and  lethargic,  as  the  facts  already  cited 
go  to  prove. 

The  German  government  favors  the  trusts,  while 
Prussia  maintains  that  it  can  limit  their  demands  by  its 
mining  operations.  However,  on  January  12,  1912, 
the  Prussian  government  abandoned  this  pretense  and 
capitulated  before  the  Rhenish-Westphalian  coal  trust 
in  regard  to  Westphalian  coal.  Production  is  not  to 
be  limited,  but  the  coal  is  to  be  sold  by  the  company. 
The  company  consented  to  decrease  by  a  half  the 
normal  price  for  coal  and  compressed  fuel  and  by  a 
seventh  the  rate  for  coke.  The  fiscal  mines  will  pay  a 
minimum  quit  rent  of  6  per  cent.,  while  private  com- 
panies pay  12  and  7  per  cent. 

In  1893  I  repealed  the  law  suppressing  private  em- 
ployment bureaus.  It  was  not  promulgated  again  until 
much  later,  March  14,  1904,  when  every  municipality 
numbering  more  than  10,000  inhabitants  was  ordered 
to  establish  a  free  employment  bureau.  I  had  proved 
that  municipalities  could  not  fulfill  this  obligation. 

If  the  law  had  ever  been  put  in  force,  258  bureaus 
.366 


THE    CONSUMER 

would  have  had  to  be  estabhshed  in  these  cities  of 
10,000  inhabitants.  In  191 1  the  Commissioner  of 
Labor  declared  in  a  circular  that  in  132  of  these  cities, 
or  51  per  cent.,  there  was  no  municipal  bureau  in 
operation.  For  the  whole  of  France,  Paris  included, 
the  total  number  of  positions  filled  annually  by  public 
employment  bureaus  averages  85,000.  According  to 
the  minister  of  the  Interior  "the  municipal  employment 
bureaus  have  not  accomplished  that  which  the  govern- 
ment expected  of  them."  Yet  he  had  counted  upon 
them  in  the  first  instance  to  compete  with  private  busi- 
ness. 

Nevertheless  this  same  minister,  with  superb  op- 
timism, declared  that,  although  the  law  had  failed,  it 
was  not  the  fault  of  the  law.  It  was  not  sufficiently 
complete,  that  was  all.  It  would  be  necessary  to  put 
in  force  the  German  system  which  associates  with  the 
employment  bureaus  the  so-called  Conseils  de  Prud'- 
hommes.^ This  committee  collects  all  indispensable 
information.  It  deals  with  the  workers  and  the  domes- 
tics for  whom  it  has  found  positions  if  they  have  given 
occasion  for  complaints.  In  France,  an  order  of  Octo- 
ber 25,  191 1,  attempted  to  establish  employment  bu- 
reaus on  the  model  of  the  German  bureaus.  Subsidies 
were  granted  from  that  date  to  bureaus  which  should 
have  fulfilled  the  three  following  conditions  : 

1.  They  must  be  under  the  control  of  a  non- 
sectarian  committee  with  a  neutral  presiding  officer 
having  no  vote; 

2.  They  must  continue  their  functions  in  case  of 

^  Arbitration  committees,  composed  partly  of  employers  and 
partly  of  workingmen. 

367 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

strike  or  lockout,  meanwhile  advising  the  applicants 
that  such  a  conflict  exists; 

3.  They  must  have  placed  an  average  of  25  appli- 
cants a  month.  ^ 

Presiding  officers  may  be  found  perhaps  for  these 
bureaus,  but  will  they  come  to  the  meetings?  What 
will  they  do  there  if  they  do  come?  They  cannot  even 
settle  the  question  between  the  two  parties  by  a  casting 
vote,  since  they  have  no  vote.  Such  bureaus  will  per- 
haps find  members,  but  members  will  be  unable  to  do 
anything  even  if  they  should  have  any  inspiration  in 
any  direction,  because  they  will  have  neither  sufficient 
appropriations  nor  police  power  (fortunately)  in  order 
to  obtain  information  indispensable  to  their  work  as 
spies.  Finally  they  would  perhaps  receive  ofïers  of 
employment,  but  would  they  continue  to  receive  de- 
mands for  work? 

When  the  employees  of  the  Postal,  Telegraph  and 
Railway  departments  organize  strikes,  they  resolutely 
sacrifice  to  their  own  interests  those  of  their  fellow 
citizens.  They  are  speculating  on  the  weariness,  the 
privations,  the  disasters  that  inevitably  follow  as  well 
as  upon  the  weakness  of  the  government  in  its  atti- 
tude toward  them. 

I  have  not  spoken  in  this  chapter  of  the  patrons  of 
state  railways.  I  have  already  demonstrated  suffi- 
ciently the  fate  of  both  passengers  and  merchandise 
when  confided  to  their  tender  mercies. 

^Bulletin  de  I'OMce  du  Travail,  February,  1912. 
368 


CHAPTER    VII 

PROGRAMS    OF    ORGANIZATION    AND    REGULATION 

The  American  Investigation. — Economy  and  Efficiency  in 
Government  Service. — Labor. — Three  Methods  of  Re- 
cruiting and  Promoting. — Regulation  of  Government 
Railways. — "Industrial  Efficiency." — Giolitti  and  the 
Hopes  of  Italy. — Elimination  of  the  Politician. — Mod- 
esty of  the  Partisans  of  Public  Operation. — The  De- 
partment Substituted  for  the  Minister. — The  English 
Admiralty  and  Winston  Churchill. — M.  Chardon  and  the 
Fourth  Power. — Impossible  to  Give  Government  Service 
Industrial  Efficiency. — Either  Stagnation  or  Disorder. 

Plans  to  make  the  wheels  of  government  run 
smoothly  are  numberless.  Parliaments  have  been  dis- 
cussing such  plans  for  years,  and  publications  suggest- 
ing all  sorts  of  methods  to  that  end  form  an  enormous 
library  in  themselves. 

Under  the  acts  of  June  23,  1910,  and  March  3, 
191 1,  the  President  of  the  United  States,  Mr.  Taft, 
appointed  a  commission  charged  with  the  duty  of  in- 
vestigating the  manner  in  which  various  Federal  de- 
partments and  public  enterprises  were  being  managed. 
Among  other  things  the  Commission  was  to  make  a 
report  indicating  methods  by  which  greater  efficiency 
and  economy  might  be  brought  into  the  public  service. 

369 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Four  volumes  of  this  report,  entitled  Efficiency  and 
Economy  in  Government  Service,  have  already  ap- 
peared. Two  contain  the  report  to  the  President  on  the 
organization  of  the  government  of  the  United  States 
on  July  I,  191 1,  and  his  message  of  January  17,  1912. 
A  third  contains  another  presidential  message,  dated 
April  4,  1912,  together  with  the  reports  of  suggested 
modifications  to  be  introduced  into  the  various  depart- 
ments and  the  remarks  of  the  heads  of  the  departments 
thereon.  A  fourth  small  volume  contains  a  third  mes- 
sage of  the  President,  transmitting  the  conclusions  of 
the  commission  regarding  the  centralization  and  the 
distribution  of  government  publications. 

The  fact  that  such  an  investigating  committee  was 
appointed  at  all  is,  of  course,  a  sufficient  proof  that 
Congress  and  the  President  had  found  that  all  was  not 
going  well  in  the  Federal  administration  of  the  United 
States.  But  where  is  the  country  whose  administra- 
tion is  perfect?  Do  we  Frenchmen  not  hear  every 
year,  apropos  of  the  budget,  and  especially  this  year 
in  regard  to  the  organization  of  the  budget  of  1907,  the 
most  violent  attacks  against  the  French  administrative 
system  and  its  methods?  To  increase  the  activities 
of  the  government  is  not  the  way  to  improve  its 
habits  or  to  bring  about  economy.  Such  is,  neverthe- 
less, the  homeopathic  remedy  which  a  number  of  those 
who  are  indulging  in  the  most  violent  criticisms  are 
now  proposing. 

The  authority  of  the  Federal  government  of  the 
United  States  extends  over  a  territory  equal  to  that 
of  eight-tenths  of  Europe  and  over  a  population  of 
92,000,000  people. 

370 


PROGRAMS    OF    ORGANIZATION    AND    REGULATION 

"The  operations  of  the  Government  affect  the  interest 
of  every  person  living  within  the  jurisdiction  of  the 
United  States.  Its  gross  expenditures  amount  to  nearly 
$1,000,000,000  annually.  Including  the  personnel  of  the 
Military  and  Naval  establishments,  more  than  400,000 
persons  are  required  to  do  the  w^ork  imposed  by  law  upon 
the  executive  branch  of  the  Government. 

"This  vast  organization  has  never  been  studied  in  de- 
tail as  one  piece  of  administrative  mechanism.  At  no 
time  has  the  attempt  been  made  to  study  all  these  activi- 
ties and  agencies  with  a  view  to  the  assignment  of  each 
activity  to  the  agency  best  fitted  to  its  performance,  to 
the  avoidance  of  duplication  of  plant  and  work,  to  the 
integration  of  all  administrative  agencies  of  the  Govern- 
ment, so  far  as  may  be  practicable,  into  a  unified  organi- 
zation for  the  most  effective  and  economical  dispatch  of 
public  business." 

Mr.  Ta  ft  makes  the  same  complaint  in  regard  to 
American  official  documents  that  has  been  made 
against  similar  French  documents,  and  which  can  be 
brought  against  the  official  documents  of  every  coun- 
try: 

"Notwithstanding  voluminous  reports,  presented  an- 
nually to  the  Congress,  no  satisfactory  statement  has  ever 
been  published  of  the  financial  transactions  of  the  Gov- 
ernment as  a  whole.  Provision  is  made  for  due  account- 
ability for  all  moneys  coming  into  the  hands  of  officers. 
.  .  .  But  no  general  system  has  ever  been  devised  for 
reporting  information  as  to  the  actual  costs  entailed  in 
the  operation  of  individual  services  nor  to  make  possible 
the  exercise  of  intelligent  judgment  concerning  the  value 
of  the  results  obtained  when  contrasted  with  the  sacrifices 
required.    I  am  convinced  that  the  time  has  come  when 

371 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  Government  should  take  stock  of  all  the  activities  and 
agencies  and  formulate  a  comprehensive  plan  with  refer- 
ence to  which  future  changes  may  be  made.  The  report 
of  the  commission  is  being  prepared  with  this  idea  in 
mind." 

One  great  difficulty  in  all  countries  is  the  recruiting 
of  employees  :  how  to  enlist  the  ablest  men  and  put 
them  into  the  positions  to  which  they  are  best  suited. 

The  message  of  Mr.  Taft  of  April  4,  191 1,  declares 
that  legislation  must  establish  "a  merit  system  which 
wall  guarantee  to  the  people  in  the  conduct  of  the  pub- 
lic business  the  advantage  of  officials  chosen  for  their 
capacity  and  devoting  their  time  and  their  talent  exclu- 
sively to  their  duties."  This  is  a  desire  more  easily  ex- 
pressed than  realized.  An  unhampered  selection  of 
employees  is  only  too  apt  to  result  in  favoritism  and 
injustice. 

Competitive  examination  is  a  Chinese  method  which 
by  no  means  insures  capability.  In  the  competitive 
examinations  of  British  India,  the  Hindoos  succeed 
where  the  Musselmen  fail,  and  the  IMusselmen  protest 
in  the  name  of  all  humanity  that  competitive  exami- 
nations too  often  bring  out  nothing  but  the  qualifica- 
tions of  a  parrot. 

Promotion  based  merely  on  length  of  service  puts 
a  premium  on  inertia  and  incapacity. 

Whatever  may  be  the  disadvantages  of  promotion 
based  on  arbitrary  selection,  it  is  the  only  method 
which  will  place  the  really  capable  man  in  higher  posi- 
tions.    Private  industry  proves  this. 

Promotion  by  selection  is  a  system  that  is  not 
adopted  and  that  cannot  be  adopted  by  a  state.     Selec- 

372 


PROGRAMS    OF    ORGANIZATION    AND    REGULATIO^T 

tion,  instead  of  falling  upon  the  more  serviceable  man, 
will  inevitably  fall  upon  the  man  who  has  the  greatest 
amount  of  pull.  The  Navy  has  its  "sons  of  the  Arch- 
bishop," while  all  departments  have  "the  sons  of  their 
fathers." 

Every  trading  operation  demands  regulation,  but 
the  regulation  of  a  state  department  tends  to  become 
so  minute  that  very  often  it  becomes  an  end  in  itself 
and  impedes  action. 

The  state  railway  of  France,  for  example,  is  sub- 
ject to  the  administrative  control  of  the  department 
of  Public  Works;  to  the  department  of  Finance,  which 
regulates  its  expenditures;  to  the  judicial  control  of 
the  Court  of  Accounts  ;  and  finally  to  parliamentary 
control,  which,  aside  from  all  the  others,  appears  in 
three  separate  and  distinct  phases  in  the  budget  of  the 
state  railway  system. 

Under  the  title  Industrial  Efficiency  of  the  State  Rail- 
ways M.  Baudin  demands  the  abolition  of  these  in- 
dispensable censorships.  In  other  words,  he  is  asking 
that  the  management  of  the  state  railways  be  permit- 
ted to  issue  bonds  in  such  quantity,  at  such  time,  and 
at  such  rate  as  it  may  deem  wise.  However,  no  sane 
minister  of  Finance  will  ever  permit  a  government  de- 
partment to  use  government  credit  at  its  pleasure. 

State  undertakings  have  no  "industrial  efficiency," 
because  they  are  subordinate  to  the  general  interests  of 
the  state  and  they  must  be  rigorously  controlled. 

In  1905  a  grand  centralization  of  the  Italian  rail- 
ways was  begun.  There  was  a  general  desire  to  have 
important  government  undertakings   concentrated   in 

373 


WHERE  AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Rome,  and  therefore  the  entire  organization  of  the 
railway  lines  was  broken  up.  In  191 1  Minister 
Sacchi  made  an  attempt  to  model  the  government  rail- 
way service  upon  the  system  being  operated  with  suc- 
cess by  the  Adriatic  Railway  Company.  Theorists 
and  experts  in  government  and  municipal  operation 
took  care  to  announce  :  "Our  system  will  be  an  ex- 
cellent one  because  it  is  to  be  managed  like  a  private 
enterprise."  Giolitti  also  emphasized  this  policy  in  his 
explanation  of  the  reasons  for  taking  over  life  insur- 
ance: 

"We  have  no  intention  of  creating  a  new  organization 
of  bureaucrats,  but  a  truly  independent  undertaking 
which  will  differ  from  private  business  of  the  same  kind 
only  in  the  fact  that  it  will  be  the  property  of  the  gov- 
ernment. The  fact  that  this  enterprise  belongs  to  the 
state  does  not  imply  that  it  has  a  character  different  from 
that  of  private  enterprises.  In  so  far  as  we  are  con- 
cerned, the  sole  difference  is  to  be  found  in  this  fact 
that  the  proprietor  is  not  an  individual." 

January  17,  191 1,  M.  Globinski,  Austrian  minister 
of  railways,  insisted  in  an  ordinance  "on  the  essen- 
tially commercial  character  of  the  railways,  of  which 
the  bureaus  ought  to  take  due  account." 

In  the  end  all  efforts  to  repudiate  the  essentially  ad- 
ministrative character  of  public  undertakings  are  a  real 
condemnation  of  them.  Why  try  to  make  a  state  en- 
terprise do  what  it  really  cannot  do?  The  private  en- 
terprises which  it  is  replacing  are  presented  to  it  as 
models  to  be  imitated.    Were  they  then  so  good  ?    At 

374 


PROGRAMS    OF    ORGANIZATION    AND    REGULATION 

any  rate  they  were  better  adapted  to  their  purpose  than 
the  public  undertaking  substituted  for  them. 

There  is  only  one  legitimate  motive  for  substituting 
public  ownership  for  private  enterprise  ;  that  is,  the  ab- 
sorption of  the  profits  of  private  companies  for  the 
benefit  either  of  consumers  or  taxpayers,  on  condition, 
of  course,  that  such  profits  are  to  be  made. 

The  Italian  National  Insurance  Fund  is  a  legal  en- 
tity, and  its  management  is  autonomous.  Nevertheless, 
the  insurance  policies  which  it  issues  are  guaranteed  by 
the  state. 

Its  management  consists  of:  (a)  An  administrative 
council;  (b)  a  standing  committee;  (c)  a  general  man- 
ager; (d)  trustees;  (c)  a  technical  and  soliciting  staff. 

The  administrative  council  is  composed  of  nine  mem- 
bers, and  is  appointed  by  royal  edict  on  the  motion 
of  the  minister  of  Agriculture,  Industry  and  Com- 
merce. The  same  edict  appoints  the  president  and  the 
vice-president  of  the  council.  Four  of  its  members  are 
public  officials,  and  four  others  private  individuals. 

M.  Jèze  is  enthusiastic  because  the  management  is 
out  of  reach  of  the  influence  of  senators  and  deputies 
and,  in  a  general  way,  of  all  persons  holding  elective 
offices.  "Therefore,  all  political  interference  is  re- 
moved from  the  operation  of  the  enterprise." 

Now  the  men  who  propose  and  vote  for  government 
monopolies  are  politicians,  ministers,  deputies,  sena- 
tors. Yet.  at  the  very  moment  that  they  are  increas- 
ing the  functions  of  the  state,  they  are  branding  the 
men  who  direct  the  state  with  dishonor.  For  in  order 
to  heap  up  the  measure  of  irony,  they  declare  that  they 

375 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

are  incapable  of  managing  the  very  institutions  with 
which  they  themselves  have  so  generously  dowered  the 
state.  Modesty  can  surely  be  pushed  no  further  than 
to  say  :  "We  will  vote  for  state  monopolies,  but  we 
declare  ourselves  unfit  to  administer  them,  because  if 
the  politicians  who  vote  for  them,  and  among  whom 
we  count  ourselves,  should  manage  such  enterprises, 
disorder,  injustice  and  corruption  would  ensue.  There- 
fore we  decline  for  ourselves,  and  we  refuse  to  any- 
one who  has  been  a  senator,  deputy  or  minister  the 
privilege  of  managing  the  National  Insurance  Fund." 

That  ministers,  senators  and  deputies  have  adopted 
this  inconsistent  attitude  may  be  a  proof  of  their  lofty 
sense  of  public  duty,  but  can  they  really  believe  that 
they  are  enhancing  the  prestige  of  deliberative  assem- 
blies by  declaring  themselves  unworthy  to  direct 
monopolies  that  they  themselves  have  created?  Are 
there  not  men  in  public  life  "who  have  demonstrated 
their  technical  and  administrative  capacity"?  No 
matter!  The  title  "member  of  parliament"  appears  to 
be  reason  enough  to  disqualify  them. 

But  the  members  of  the  administrative  council 
above  referred  to  are  appointed  by  ministers  who  are, 
of  course,  public  men.  Ministers  also  appoint  the 
general  manager.  Are  we  then  to  believe  that  all  po- 
litical considerations  are  eliminated  in  these  selec- 
tions? 

Finally,  the  trustees  must  present  annual  reports, 
which  it  is  the  duty  of  the  minister  of  Agriculture,  In- 
dustry and  Commerce  to  communicate  to  Parliament, 
together  with  the  report  of  the  managing  council 
(Conseil  d'Administration  de  la  Caisse).     Moreover, 

Z7^ 


PROGRAMS    OF    ORGANIZATION    AND    REGULATION 

the  technical  and  analytical  balance  sheet  containing  all 
the  data,  admitting  of  estimate  as  to  the  profits  realized 
by  the  Fund  from  each  contract  and  each  form  of 
insurance,  according  to  the  nature  of  the  insurance 
operations,  must  be  communicated  to  Parliament  every 
three  years. 

Consequently  the  interference  of  politicians,  to  use 
the  scornful  title  of  Professor  Jèze,  is  not  completely 
eliminated  from  the  management  of  the  National  In- 
surance Fund.  Moreover,  it  cannot  be  eliminated  from 
any  government  monopoly,  except  by  constituting  such 
monopoly  a  power  apart  and  placing  it  above  all  other 
institutions  of  the  country.  The  ministers  appoint  the 
important  officials.  The  government  has  always  the 
right  of  control,  and  every  three  years  a  detailed  ac- 
count of  the  business  of  the  monopoly  must  be  sub- 
mitted to  Parliament. 

In  a  report  of  M.  Gaudin,  of  July,  1912,  I  read  the 
following  regarding  supplementary  appropriations  to 
the  state  railway  of  France  : 

"The  administrative  organization  of  the  state  system 
tends  to  eliminate  all  political  interference  with  the 
employees.  The  form  of  the  statute  as  actually  pre- 
pared, by  the  execution  of  articles  58  and  68  of  the  law 
of  July  13,  1911,  serves  to  keep  the  department  free 
from  all  external  influence." 

This  looks  well  in  print,  although  everyone  knows 
that  it  will  not  amount  to  anything.  The  statute  ap- 
peared April  31. 

In  October  the  director  of  the  state  railway  sys- 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tern  addressed  a  letter  to  the  deputies,  declaring  that  in 
future  no  further  attention  would  be  paid  to  their  rec- 
ommendations. A  single  incident,  however,  is  helping 
to  prove  that  attention  will  at  least  be  paid  to  whatever 
the  subprefect  shall  ask  of  the  official  spy  called  the 
municipal  delegate. 

In  19 1 2  Winston  Churchill  presented  as  his  own 
naval  program  the  demands  of  the  Board  of  Ad- 
miralty. "The  Board  of  Admiralty  settles  everything; 
the  cabinet  only  registers  its  decisions,"  said  the 
Economist.^  If  each  service  were  to  settle  its  own 
affairs  in  complete  independence,  what  but  anarchy 
and  ruin  could  result?  It  is  the  duty  of  the  govern- 
ment to  determine,  according  to  general  political, 
financial  and  economic  conditions,  the  part  that  each 
service  ought  to  play  in  the  general  scheme  of  things, 
as  well  as  in  regard  to  the  manner  in  which  such  serv- 
ice is  being  carried  on.  Coordination  of  efïort  and  re- 
sponsibility is  the  condition  of  the  existence  of  a  na- 
tion. The  men  at  the  head  of  pubhc  afïairs  are  alone 
able  to  bring  about  such  coordination,  and  they  ought 
to  assume  not  only  the  task,  but  likewise  its  responsi- 
bility. 

Every  extension  of  governmental  functions  involves 
new  duties  and  the  creation  of  new  officials,  while,  at 
the  same  time,  it  increases  the  importance  of  those  al- 
ready in  office.  The  preponderant  rôle  which  politi- 
cians themselves  yield  to  bureaucracy  is  easily  seen. 
They  declare  themselves  incapable,  and  abdicate  in 
favor  of  the  bureaus. 

^  July  27,  1912. 

378 


PROGRAMS    OF    ORGANIZATION    AND    REGULATION 

All  this  appears  so  natural  that  a  recording  secre- 
tary to  the  Council  of  State,  M.  Chardon,  favors  the 
organization  of  a  fourth  division  of  government  to  be 
called  "tJic  administrative  power/'  He  declares  that 
the  director  of  any  state  department  should  be  able  to 
appeal  through  his  writings  and  speeches,  and  also  by 
his  position,  as  a  commissioner  of  government  no 
doubt,  against  the  decisions  of  his  ministerial  superior. 
But  surely  the  heads  of  departments  would  have  a  logi- 
cal right  to  the  same  attitude  toward  their  directors  ; 
the  managers  of  bureaus  toward  the  head  of  their  de- 
partment ;  and  the  assistant  managers  in  regard  to  the 
managers  of  the  bureaus  ;  the  head  clerks  and  the  cleri- 
cal staff  with  respect  to  their  superiors,  and  so  on. 
The  moment  any  such  power  comes  to  be  recognized 
anarchy  will  have  been  proclaimed. 

Administration  is  not  a  power  comparable  to  the 
executive,  legislative  or  judicial  power.  It  is  an  essen- 
tial part  of  the  executive  power.  It  can  neither  be  sep- 
arated from  it  nor  exist  apart  from  it.  An  executive 
power  which  has  for  its  prime  duty  the  security  of  the 
people  of  the  nation  at  home  and  abroad  can  be  only 
a  political  power. 

It  is  precisely  because  of  the  essential  nature  of  the 
executive  power  that  duties  foreign  to  it,  and  which 
must  inevitably  corrupt,  disintegrate  and  prevent  it 
from  fulfilling  its  real  functions,  ought  not  to  be 
forced  upon  it. 

All  attempts  to  give  "a  business  organization"  to 
government  enterprises  are  condemned  to  failure  in 
advance.  Either  such  undertakings  will  languish  un- 
der an  abuse  of  control  which  would  impede  action,  or, 

379 


WHERTE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

while  operating  in  full  liberty,  they  will  fall  into  moral 
and  financial  disorder.  And  let  it  not  be  forgotten 
that  stagnation  and  disorder  far  from  nullifying  fre- 
quently reinforce  each  other. 


380 


BOOK   IV 

POLITICAL    AND     SOCIAL     CONSE- 
QUENCES OF  PUBLIC  OPERATION 

CHAPTER   I 

SOCIALIST   PROGRAMS   AND   THE   FACTS 

1.  An  American  Idea. 

2.  Facts   and    Programs. — Organization   of    Public   Service. 

Legal  Monopoly. — Natural  Monopoly. — Actual  Monop- 
olies Transformed  into  Legal  Monopolies. — Restor- 
ing the  Profits  of  Capitalism  to  the  Community. — Ex- 
haustion of  Taxable  Property. — Fiscal  Monopolies. — 
A  Quotation  from  Montesquieu. — Fraud. — Resolution 
of  the  French  Chamber  of  Deputies  in  Favor  of  the 
Alcohol  Monopoly. — Georges  Cochery  and  the  Alcohol 
and  Insurance  Monopolies. — Significance  of  His  Words. 
Adoption  by  the  Budget  Committee  of  1901  of  a  Pro- 
posal to  Set  up  a  Petroleum  Monopoly. — Proposal  to 
Monopolize  the  Importation  of  Wheat  and  Flour. 

3.  Daring    Theories. — Timidity    in    Application. — Socialism 

Under  Cover  and  Socialism  on  Parade. — Ramsay  Mac- 
donald. 

4.  Municipal    Socialism. — Platform    of   the   Three    Political 

Groups  in  Great  Britain. — The  International  Socialist 
Congress  of  1900  and  the  Municipal  Program. — The 
Claims  of  M.  Lafferre  in  the  Name  of  the  Radical  and 
Radical-Socialist  Party.— The  True  Founders  of  Mu- 
nicipal Socialism. — The  Congress  of  St.  Quentin. — 
Method  of  Combating  Capitalism  and  Middle  Class  Po- 
litical Conservatism. 

381 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

5.  The    Dupes. — A    Project    of    Municipal    Bakeries    and 
Butcher  Shops. 

1.  In  opposition  to  the  principle  of  freedom  of  com- 
merce and  industry  held  generally  throughout  the 
United  States,  Tzvcniicth  Century  Socialism,^  a  post- 
humous work  by  an  American  named  Edmond  Kelly, 
ofifers  the  following  remedy  for  contemporary  politi- 
cal, social  and  industrial  unrest  : 

The  Socialist  organization  recognizes  both  private 
and  public  property.  Certain  industries  will  be  fully 
socialized.  In  such  industries  capitalist  direction  and 
operation  will  be  wholly  eliminated.  The  production  of 
those  things  for  which  the  demand  is  great,  and  espe- 
cially those  which  can  be  most  easily  and  fraudulently 
adulterated,  will  be  socialized,  as  will  be  the  case  also  in 
industries  of  which  a  monopoly  is  readily  established. 
Other  industries,  as  petroleum,  will  be  given  over  to  the 
regulation  of  a  syndicate  of  workingmen  with  a  board 
of  directors  in  which  the  state  will  be  represented  in 
order  to  insure  state  control. 

The  private  ownership  of  farms  will  be  maintained, 
but  private  ownership  in  cities  will  be  suppressed. 

I  mention  this  book,  because  it  has  attracted  some 
attention,  although  the  childish  simplicity  of  its  pro- 
posals is  sufficient  for  an  estimate  of  its  value. 

2.  In  the  Socialist  vocabulary  the  establishment  of 
state  and  municipal  monopolies  is  called  "the  or- 
ganization of  public  service,"  and  a  distinction  is 
made  between  legal  monopolies  and  natural  monopo- 

'  Longmans,  Green  &  Co.,  New  York,  1910. 
382 


SOCIALIST    PROGRAMS    AND   THE   FACTS 

lies.  In  the  end,  however,  this  difference  disappears, 
for  private  property  is  to  be  confiscated,  whether  it  be 
under  the  name  of  railway  operation,  mining  or  the 
distribution  of  hydro-electric  power.  Ministerial  of- 
fices are  to  be  abolished,  and  notaries,  attorneys  and 
bailiffs  transformed  into  functionaries. 

Socialists  are  quite  willing  to  acknowledge  that 
the  refining  of  sugar  or  of  oil  is  neither  a  legal  nor 
a  natural  monopoly,  but  these  industries,  concentrated 
as  they  are  in  a  small  number  of  hands,  are  virtual 
monopolies.  Therefore,  if  the  government  finds  it 
worth  while,  they  are  to  be  converted  into  public  serv- 
ices. Indeed,  state  and  municipal  monopolies,  being 
easy  to  organize  and  to  operate,  are  going  to  deprive 
the  capitalists  of  magnificent  profits,  which  will  be 
restored  to  the  community. 

To  economize  in  the  budget  is  out  of  the  question; 
by  the  income  tax  the  incomes  already  subject  to 
super-taxation  will  be  so  reduced  that  the  state 
revenue  will  be  absolutely  insufficient  to  meet  the 
needs  of  the  social  budget  of  either  the  Radical  and 
Radical  Socialist  party  or  of  the  Socialist  party.  The 
only  available  remedy,  therefore,  will  be  to  establish 
fiscal  monopolies. 

Socialists  also  hold  that  when  any  commodity  is 
burdened  with  heavy  indirect  taxes,  that  commodity 
ought  to  be  transformed  into  a  monopoly  ;  and  apropos 
of  this  they  have  quoted  inaccurately  the  following 
passage  from  Montesquieu  :  ^ 

"In  order  to  make  the  purchaser  confound  the  price 
of  the  commodity  with  the  impost,  there  must  be  some 
^Esprit  des  Lois,  book  13,  chapter  8. 
383 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

proportion  between  the  impost  and  the  value  of  the  com- 
modity ;  for  which  reason  there  ought  not  to  be  an  ex- 
cessive duty  upon  merchandise  of  Httle  value.  There  are 
countries  in  which  the  duty  exceeds  seventeen  or  eighteen 
times  the  value  of  the  commodity.  In  this  case  the  prince 
removes  the  disguise — viz. — subjects  plainly  see  they  are 
dealt  with  in  an  unreasonable  manner,  which  renders 
them  most  exquisitely  sensible  of  their  servile  condition. 

"Besides,  the  prince,  to  be  able  to  levy  a  duty  so  dis- 
proportioned  to  the  value  of  the  commodity  must  be  him- 
self the  vendor  and  the  people  must  not  have  it  in  their 
power  to  purchase  it  elsewhere  :  a  practice  subject  to  a 
thousand  inconveniences." 

Montesquieu  might  have  been  able  to  approve  with- 
out reserve  the  substitution  of  a  monopoly  for  heavy 
taxes  ;  but  we  no  longer  live  in  the  times  when  two 
lines  from  Hippocrates  or  Aristotle  decided  our  prob- 
lems for  us.  We  see,  however,  under  what  conditions 
and  with  what  reserve  Montesquieu  explains  the  mo- 
tives which  cause  the  government  to  act  in  this  manner. 
For  their  own  purposes  the  Socialists  have  made  capi- 
tal of  his  text;  but,  after  verification,  it  proves  refrac- 
tory. 

Still  another  argument  invoked  to-day  in  favor  of 
state  monopoly  is  that  it  will  suppress  customs  frauds. 

Yet  in  France  there  are  districts  in  which  the  tax 
upon  matches  yields  no  receipts,  and  between  the 
frontier  of  Belgium  and  France  the  principal  occupa- 
tion of  the  customs  officers  is  preventing  the  smug- 
gling of  tobacco.  It  is  in  regard  to  just  such  a  condi- 
tion as  this  that  Montesquieu  has  declared  : 

384 


SOCIALIST   PROGRAMS   AND   THE   FACTS 

"Smuggling  being  in  this  case  extremely  lucrative,  the 
natural  and  most  reasonable  penalty — namely,  the  con- 
fiscation of  the  merchandise — becomes  incapable  of  put- 
ting a  stop  to  it  ;  especially  as  this  very  merchandise  is 
intrinsically  of  inconsiderable  value.  Recourse  must 
therefore  be  had  to  extravagant  punishments  such  as 
those  inflicted  for  capital  crimes.  All  proportion,  then, 
of  penalties  is  at  an  end." 

But  it  is  said  that  in  France  tobacco  is  a  lucrative 
monopoly  (we  do  not  talk  so  much  about  matches), 
and  a  monopoly  of  alcohol  is  being  considered.  As  a 
result  of  the  Socialist  propaganda  in  1904,  the  French 
Chamber  of  Deputies  adopted  the  follow^ing  resolu- 
tion: 

"Beginning  vv^ith  January  i,  1905,  the  government  will 
introduce  a  monopoly  of  the  manufacture,  adulteration, 
modification  and  importation  of  alcohol. 

"No  new  distillery  may  be  created  after  the  promulga- 
tion of  this  law." 

That  resolution  remained  on  the  table,  but  five  years 
later,  November  19,  1909,  Georges  Cochery,  then  min- 
ister of  Finance,  said: 

"The  question  of  an  alcohol  monopoly  agitated  some 
years  ago  and  taken  up  with  enthusiasm  was  soon  after- 
ward dropped.  It  has  again  been  taken  up,  however, 
and  an  examination  of  the  whole  subject  will  shortly  be 
made.  (Loud  applause  from  the  extreme  left,  namely, 
the  Socialists  and  Radical  Socialists.) 

"But  before  it  is  investigated  still  another  problem 
may  possibly  be  brought  up — the  question  of  an  insur- 

385 


WHERE   AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

ance  monopoly,  or  at  least  a  monopoly  of  certain  kinds 
of  insurance." 

When  such  words  as  these  are  spoken  by  a  minister 
of  Finance,  they  acquire  a  significance  that  skeptics, 
the  indifferent  and,  with  much  more  reason,  interested 
parties  (and  in  this  case  the  interested  parties  are  the 
whole  body  of  consumers  and  taxpayers)  would  make 
a  mistake  in  passing  over.  The  vote  on  the  resolu- 
tion of  the  Chamber  of  Deputies  shows  of  what  aberra- 
tions majorities  are  capable. 

In  October,  1901,  the  Budget  Committee,  after  hav- 
ing rejected  a  tax  of  i  franc  50  per  cwt.  on  crude 
petroleum  proposed  by  M.  Caillaux,  minister  of 
Finance,  passed  by  seven  votes  against  four  and  two 
or  three  absences  a  bill  introduced  by  Marcel  Sem- 
bat  and  worded  as  follows  : 

"Article  i. — The  purchase,  refining  and  sale  at  whole- 
sale of  petroleum  are  exclusive  prerogatives  of  the  state 
throughout  its  territory." 

On  the  same  day  the  Committee  introduced  the  ar- 
ticles of  the  Sembat  bill  in  its  finance  law. 

On  February  17.  1894,  M.  Jaurès  introduced  a  bill 
signed  by  Thierry-Cases,  Bepmale,  Millerand,  Viviani, 
Desfontaines,  Sembat  and  Vaillant,  as  follows  : 

"The  state  has  the  sole  right  to  import  foreign  wheat 
and  flour. 

"It  will  sell  these  commodities  at  a  price  fixed  annually 
by  law. 

"It  will  sell  flour  at  a  price  based  on  the  price  of 
wheat  and  also  determined  by  law." 

386 


SOCIALIST    PROGRAMS   AND   THE   FACTS 

In  1903  MM.  Paul  Constans,  Ed.  Vaillant,  Mar- 
cel Sembat  and  nine  other  Socialist  deputies,  "in 
order  to  put  an  end  to  the  food  crisis,"  introduced 
a  bill,  the  first  clause  of  which  suppressed  the  customs 
duties  upon  wheat  and  flour,  but  clause  3  of  which 
"charged  the  government  with  the  duty  of  importing 
wheat  and  flour  and  buying  it  at  home  as  well  as 
abroad  in  quantities  necessary  and  sufficient  for  na- 
tional needs." 

Clause  4  established  a  commission  charged  with  or- 
ganizing "within  the  shortest  possible  period  a  na- 
tional commercial  service  to  supervise  the  food  sup- 
ply, including  especially  provision  by  the  government 
and  the  state  and  municipal  storehouses  of  quantities 
of  wheat  and  flour;  the  establishment  of  national  and 
municipal  mills  and  municipal  bakeries  ;  and  finally  co- 
operative agricultural  production." 

3.  But  side  by  side  with  the  above  audacities  went  a 
timidity  of  execution  springing  from  past  experi- 
ences. 

In  19 1 2,  at  the  Congress  of  the  National  Railway 
Association,  Albert  Thomas,  a  Socialist  deputy,  ad- 
vised the  postponement  of  the  purchase  of  lines  other 
than  the  Western,  saying: 

"The  purchase  must  be  carried  out  in  a  different  man- 
ner from  that  of  the  Western.  Ft  will  be  necessary  to 
secure  the  financial  autonomy  of  the  system  ;  the  partici- 
pation of  the  employees  in  the  management  ;  and  also 
public  representation  therein.  In  order  to  conduct  a  cam- 
paign for  nationalization,  at  present  neglected,  we  must 

387 


WHERE   AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

have  a  solemn  declaration  on  the  part  of  an  organized 
proletariat." 

And  M.  Odinot  adds: 

"When  the  end  of  the  franchise  granted  the  companies 
by  the  state  shall  have  come,  a  considerable  efïort  will  be 
necessary  in  order  to  bring  about  a  general  purchase." 

Thus  the  leaders  were  anxious  to  temporize.  They 
understood  that  for  them  promises  and  programs  are 
worth  far  more  than  realization.  Such  a  statement, 
however,  in  bald  terms  would  have  been  a  confession 
of  lack  of  power  and  of  charlatanism.  They  therefore 
sought  pretexts  for  postponing  action  and  in  so  doing 
furnished  an  illustration  of  two  phases  of  Socialism  : 
one  underhanded  and  cowardly;  the  other — meant  for 
exhibition — full  of  audacity. 

In  spite  of  the  cautious  advice  of  their  leaders,  how- 
ever, the  delegates  answered  by  passing,  almost  unani- 
mously, an  order  of  the  day  providing  for  immediate 
nationalization. 

In  any  event — if  Socialist  councils  prevail — when 
the  time  comes  for  the  roads  to  be  turned  over  to  the 
state,  they  will  scarcely  be  worth  the  trouble  of  buy- 
ing. As  the  contracts  which  bind  them,  however,  do 
not  expire  for  more  than  40  years,  some  time  must 
elapse  before  there  is  any  further  extension  of  the  ex- 
periment of  state  operation  of  railroads. 

In  the  United  Kingdom,  in  the  course  of  the  dis- 
cussion over  the  answer  to  the  speech  from  the  throne 
of  February  15,  1912,  Ramsay  Macdonald,  President 

388 


SOCIALIST    PROGRAMS    AND   THE   FACTS 

of  the  Labor  party,  presented  to  the  House  of  Com- 
mons as  a  remedy  for  industrial  unrest  "the  fixing  of 
a  minimum  salary  and  the  nationalization  of  the  rail- 
ways, mines  and  other  monopolies."  But  he  did  not 
develop  the  last  point  of  his  amendment  any  further. 
Sir  F.  Banbury  remarked  that  the  Labor  party  had 
introduced  this  last  bill  only  in  order  to  prove  to  the 
electors  that  it  was  still  alive.  Mr.  Robertson,  parlia- 
mentary secretary  of  the  Board  of  Trade,  congratu- 
lated Ramsay  Macdonald  on  the  discretion  with  which 
he  had  supported  it. 

4.  The  Social  Democratic  Federation,  the  Inde- 
pendent Labor  Party  and  the  Fabian  Society  are  all 
agreed  in  following  up  a  resolution  adopted  in  1896 
advocating  nationalization  of  the  mines,  railways,  ca- 
nals, telegraphs  and  telephones  ;  and  the  municipaliza- 
tion of  water,  gas,  electricity,  omnibuses,  pawn  shops 
and  steamboats;  the  manufacture  and  sale  at  retail  of 
tobacco,  bread,  coal,  milk  and  other  fundamentally 
necessary  commodities;  the  construction  of  workmen's 
houses  ;  the  manufacture  and  sale  of  alcoholic  drinks. 

The  International  Socialist  Congress  held  in  Paris  in 
1900  passed  the  following  resolution: 

"That  it  is  the  duty  of  all  Socialists  to  force  a  recogni- 
tion in  all  projects  for  municipal  reform  that  they  are 
important  only  in  so  far  as  they  foreshadow  a  coUectiv- 
ist  government,  and  to  force  upon  municipalities  public 
services  such  as  urban  transportation,  education,  baker- 
ies, medical  attendance,  hospitals,  water  supply,  the  dis- 
tribution of  power,  public  works,  the  police,  etc." 

389 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

In  1904  the  Radical  and  Radical  Socialist  party 
adopted  the  same  municipal  program  as  that  just 
quoted,  but,  in  refusing  to  recognize  that  it  had  bor- 
rowed its  program  from  the  Socialists,  the  party  even 
went  so  far  as  to  claim  the  theories  thus  indorsed  as 
it  own  exclusive  property — under  the  circumstances  a 
somewhat  cool  proceeding.  February  10,  1904,  M. 
Lafferre,  then  president  of  the  Executive  Committee 
of  the  Radical  and  Radical  Socialist  party,  spoke  as 
follows  : 

"The  key  to  the  municipal  financial  problem  lies  in  the 
application  to  it  of  an  economic  program  consisting  al- 
most wholly  of  a  municipalization  of  all  utilities  in  com- 
mon use;  gas,  electricity,  power,  general  transportation, 
etc." 

Further  on,  M.  Lafiferre  speaks  with  enthusiasm  of 
"municipal  fire  insurance."  He  regrets  that  the  Coun- 
cil of  State  has  not  permitted  the  establishment  of  "a. 
municipal  pharmacy  at  Douai"  ;  he  dilates  upon  the 
encouragement  which  should  be  given  to  the  construc- 
tion of  cheap  houses;  he  regrets  that  it  is  only  with 
great  difficulty  "that  municipalities  can  obtain  author- 
ity to  subsidize  cooperative  joint  stock  construction 
companies." 

He  adds  finally  :  "Certain  skeptical  minds  assert 
that  our  program  is  nothing  but  a  sort  of  sweetened 
Socialism.  It  should  be  insistently  repeated  that  this 
program  is  ours,  altogether  ours."  After  which  he 
adds  : 

"In  carrying  out  this  program,  already  so  vast,  we 
invite  the  friendly  cooperation  of  the  Socialists.     We 

390 


SOCIALIST   PROGRAMS   AND  THE  FACTS 

ask  them,  however,  not  to  forget  our  prior  claim  to 
the  idea  that  all  property  belongs  to  the  public."  A 
highly  imprudent  addition.  It  would  have  been  im- 
possible for  M.  Lafïerre  to  prove  such  a  statement, 
while  the  Socialists  would  not  have  had  the  smallest 
difficulty  in  demonstrating  that  the  Belgians,  Colins 
and  César  de  Paepe,  and  the  French  Benoit  Malon 
and  Paul  Brousse  were  the  true  founders  of  Municipal 
Socialism  and  the  forerunners  of  the  Fabians. 

During  the  Socialist  Congress  at  St.  Quentin  in 
April,  1911,  M.  Edgard  Milhaud  gave  expression  to 
the  theory  of  the  municipalization  of  service.  To 
forestall  any  criticism  regarding  the  meagre  results 
achieved  in  the  way  of  relief  of  taxation,  he  said  : 

"The  object  of  municipalizing  the  forces  of  production 
should  not  be  to  reduce  taxes,  but  to  reduce  the  cost  of 
living." 

This  statement  ought  to  be  kept  in  mind  by  those 
who  cherish  the  delusion  that  they  can  solve  the  ques- 
tion of  taxation  by  establishing  state  monopolies. 

The  Congress  also  passed  two  resolutions,  one  in 
favor  of  the  purchase  of  the  railways,  the  other  in 
favor  of  municipal  operation. 

"Municipal  services  ought  to  be  established  in  the 
first  place  for  the  advantage  of  the  laboring  people  and 
the  poor,  for  whom  they  ought  to  be  provided  at  cost 
price  if  remunerative.  And,  if  they  yield  profits  through 
their  use  by  other  classes  of  the  population,  these  profits 
ouglit  to  be  utilized  to  extend  municipal  services  in  the 
labor  interest,  and,  above  all,  to  create  and  develop  gratui- 

391 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tous  education,  sanitation,  insurance,  organized  charity, 
and  food." 

Then  in  order  that  there  should  be  no  doubt  as  to 
the  character  of  these  claims  it  was  added  : 

"By  their  municipal  action,  by  increasing  the  guaranties 
of  prosperity,  liberty  and  the  fighting  chances  of  the  pro- 
letariat. Socialists  can  add  to  the  force  of  their  claims  as 
well  as  of  the  fight  against  capitalism  and  middle  class 
political  conservatism." 

If  interventionalists  of  every  species  "for  their  own 
reasons"  help  along  the  work  of  the  Socialist,  it  will 
not  be  for  lack  of  warning  on  the  part  of  the  Socialist 
party  itself.  But  there  are  men  who  have  a  natural 
aptitude  for  and  take  pride  in  allowing  themselves  to 
be  made  dupes. 

5.  In  August,  1911,  the  cost  of  living  in  France 
reached  a  crisis.  Trouble  broke  out  in  the  North,^  and 
the  Caillaux  ministry  found  nothing  better  to  do  than 
to  offer  to  the  women  and  men  who  found  bread,  meat, 
milk,  and  vegetables  too  high  this  poultice: 

"Municipalities  may  be  authorized  by  a  decree  of  the 
Council  of  State  either  to  assist  by  loans  in  the  creation 
of  cooperative  societies  for  the  establishment  of  bakeries 
and  butcher  shops,  or  to  establish  themselves,  and  cause 
to  be  publicly  operated,  bakeries  and  butcher  shops,  under 
the  conditions  prescribed."  ^ 

*  See  E.  Watelet,  Les  Récents  Troubles  du  Nord  de  la  France, 
1912. 

■  Discussion  de  la  Société  d'Economie  Politique,  Journal  des 
Economistes,  December,   191 1. 


SOCIALIST    PROGRAMS   AND   THE   FACTS 

This  brilliant  plan  received  such  an  enthusiastic  wel- 
come that  the  Poincaré  ministry  speedily  withdrew  it. 

The  Council  of  State  has  now  accepted  the  principle 
that  economic  action  on  the  part  of  a  municipality  is 
illegal  when  it  results  in  willful  and  systematic  restraint 
of  commerce  and  industry.  It  has  made  some  allow- 
ances in  special  cases,  but  we  hope  that  in  the  future 
it  will  adhere  firmly  to  the  principle. 


^93 


CHAPTER    II 


BLUFF 


Declarations  of  Edgard  Milhaud. — Enumeration. — Govern- 
ment and  Municipal  Undertakings  Are  Traditions,  Not 
Innovations. — Far  from  Being  Proofs  of  Evolution, 
They  Are  Proofs  of  Retrogression. — Example:  Ger- 
many.— Postoffice. — Forests. — Gobelin  Tapestry  and 
Sèvres  China. — The  Legitimate  Share  of  Government 
and  Municipality  in  General  Economic  Activity. 

In  November,  191 1,  Edgard  Milhaud,  editor  of  the 
Annales  de  la  Régie  Directe,  declared  in  that  pubHca- 
tion: 

"Operation  by  public  groups — that  is  to  say,  govern- 
ment ownership — is  being  substituted  more  and  more 
for  operation  by  individuals  or  by  private  corporations. 
In  the  field  of  municipal  operation  we  might  mention 
water  supply,  gas,  electricity,  tramways,  highways,  sew- 
age disposal,  sanitation,  undertaking,  crematories,  mar- 
kets, department  stores,  savings  banks,  pawnshops, 
weights  and  measures,  employment  offices,  real  estate  of- 
fices, cheap  lodgings,  slaughter  houses,  public  baths,  grain 
elevators,  fish  ponds,  etc.  To-day  municipal  operation 
of  water,  gas,  electricity  and  tramways  forms  a  total 
of  338  undertakings  in  Switzerland,  569  in  Italy,  and 
1,805  in  the  United  Kingdom.  Water  and  gas  enter- 
prises alone  reach  a  total  of  3,210  in  Germany. 

394 


BLUFF 

"In  the  field  of  state  undertakings  we  would  mention 
the  postal,  telegraph  and  telephone  systems,  railways, 
canals,  insurance,  title  guaranty  and  trust  companies, 
banks  of  issue,  mines,  salt  works  and  salt  marshes,  hydro- 
electric power,  forests,  various  manufactures  (powder, 
munitions  of  war,  matches,  tobacco,  tapestries,  fine  porce- 
lain, etc.),  monopolies  of  several  imports  and  exports 
(the  camphor  trade  with  Japan,  Colombian  emeralds, 
etc.).  Moreover,  one  international  federation  of  na- 
tional undertakings  was  established  37  years  ago,  in  1874. 
This  is  the  Universal  Postal  Union." 

M.  Milhaud  is  an  exponent  of  that  particular 
rhetorical  method  which  consists  in  producing  effects 
by  piling  up  words  one  on  top  of  the  other  in  such  a 
manner  as  to  give  an  impression  of  large  quantities 
in  face  of  really  small  ones.  If  we  are  to  credit  his 
statement,  people  far  advanced  along  the  path  of  evo- 
lution are  finding  themselves  carried  away  by  an  irre- 
sistible impulse  to  substitute  public  for  private  under- 
takings. Then  he  enumerates  these  undertakings  for 
us. 

Now  municipal  undertakings  are  by  no  means  novel- 
ties; they  are  traditions,  at  least  in  the  case  of  public 
roads,  sewage  disposal,  cemeteries,  common  sewers, 
markets,  public  weights  and  measures,  etc.  The  aque- 
ducts of  the  Romans  prove  to  us  that  their  water  supply 
was  a  municipal  afifair.  Therefore,  as  novelties,  we 
have  the  distribution  of  gas,  electricity  and  the  tram- 
ways. 

He  quotes  Germany  as  having  the  greatest  number 
of  municipal  undertakings.  These  also  are  traditions 
and  not  innovations.    The  case  is  the  same  in  Switzer- 

395 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

land,  where  the  paternal  policy  of  the  cantons  has  never 
established  a  definite  limit  between  what  belongs  to  the 
individual  and  what  to  the  public  domain.  The  num- 
ber of  local  governments  in  the  United  Kingdom 
which  have  taken  over  such  enterprises  is  astonish- 
ing; but  experience  is  decidedly  against  any  further 
extension  of  similar  activities  on  the  part  of  munici- 
palities. In  France,  up  to  the  present,  and  despite 
all  the  allurements  of  the  Socialists,  the  municipalities 
have  shown  themselves  distrustful. 

As  for  national  undertakings,  Edgard  Milhaud 
points  to  the  postal,  telegraph  and  telephone  services. 

The  two  last  mentioned  undertakings,  except  in  the 
United  States,  are  integral  parts  of  the  postal  system. 
The  Assyrians  also  had  a  government  postal  system, 
not  for  the  use  of  the  people,  but  for  the  service  of  the 
king.  A  similar  institution  was  established  and  for 
the  same  purpose  by  the  kings  of  France  and  other 
sovereigns.  It  is  a  government  tradition.  The  ma- 
jority of  the  railway  lines  still  belong  to  private  compa- 
nies. As  for  insurance,  there  is  scarcely  one  system 
under  public  management  outside  of  the  municipal  fire 
insurance  in  Germany.  Because  Prussia  is  a  great 
mine  owner,  it  does  not  follow  that  that  country  is 
pointing  out  the  future  economic  course  of  other  peo- 
ples. The  public  forests  are  a  remnant  of  the  feudal 
régime. 

Tobacco  and  match  monopolies  are  limited  to  one  or 
two  countries.  The  Gobelin  tapestry  and  the  Sèvres 
porcelain  are  monarchical  heirlooms. 

In  Austria,  toward  the  close  of  1911,  a  bill  for  the 
nationalization   of   coal   mines   was   presented.      But 

396 


BLUFF 

Superintendent  Holmann,  representing  the  govern- 
ment, gave  it  as  his  opinion  that  the  nationalization  of 
Austrian  coal  mines  would  require  an  amount  of  capi- 
tal so  extravagant  that  it  would  be  impossible  to  pro- 
cure it.  Moreover,  he  considered  that  it  would  be  a 
mistake  to  hope  for  large  results  from  such  nationali- 
zation, as  it  would  have  all  the  economic  defects  and 
inconveniences  of  similar  monopolies  everywhere.  The 
project  was,  therefore,  abandoned. 

And  yet  M.  Milhaud  can  say  :  "The  unceasing 
march  toward  nationalization  and  municipalization  is 
supported,  stimulated  and  commanded  by  economic 
evolution." 

Neither  government  nor  municipal  monopolies  are 
novelties  ;  they  are  antiques.  To  represent  them  in  the 
light  of  consequences  of  modern  economic  changes  is 
to  commit  a  solecism.  They  are  not  indicative  of  evo- 
lution, but  of  retrogression. 

As  a  matter  of  fact,  if  throughout  the  world  we 
compare  the  economic  activity  of  private  undertakings 
with  those  of  governments,  either  local  or  state,  the  lat- 
ter appear  almost  insignificant.  The  338  Swiss  mu- 
nicipalities may  be  each  in  itself  most  interesting  in  its 
public  economic  activities.  But  Switzerland  has  only 
3,763,000  inhabitants,  and  the  importance  of  their  ac- 
tivities is  therefore  limited. 


397 


CHAPTER    III 

RESULTS   OF    EXPERIENCE 

The  Meagreness  of  the  Socialist  Program. — Those  Who 
Have  Office  and  Those  Who  Want  It. — The  Programs 
of  Government  and  Municipal  Operation  Condemned 
by  Experience,  and  from  the  Double  Point  of  View  of 
Quality  and  Cost  of  Service. — State  and  Municipal 
Ow^nership  Show  Incontestable  Inferiority. — The  Util- 
ity and  Danger  of  Such  Experiments. 

Socialist  programs  are  pitifully  meagre.  They 
would  not  amount  to  anything  but  for  the  weakness 
and  hunger  for  popularity  of  candidates  for  office  and 
the  desire  of  deputies,  municipal  councillors  and 
mayors  to  eliminate  their  competitors.  Political  ambi- 
tions form  the  cornerstones  of  such  programs,  and,  if 
officials  did  not  find  in  them  promises  of  an  increase 
in  power  for  themselves  and  of  employment  for  their 
sons,  sons-in-law  and  nephews  they  would  vanish  in 
air. 

Against  a  wider  extension  of  public  economic  re- 
sponsibilities nothing  but  experience  stands  in  the  way. 
But  it  condemns  unreservedly  any  such  extension. 
From  the  point  of  view,  both  of  the  quality  and  of  the 
cost  of  service,  state  and  mimicipal  ownership  show 
incontestable  inferiority  to  private  enterprise. 

The  experiments  with  State  and  Municipal  Social- 

398 


RESULTS    OF    EXPERIENCE 

ism  have  resulted  so  disastrously  that  their  opponents 
might  even  see  an  advantage  in  hastening  and  multi- 
plying them.  Unfortunately  human  experiments  are 
not  like  those  of  a  laboratory.  When  they  occur  they 
invariably  displace  and  break  something.  They  pro- 
voke passions  ;  they  create  conflicting  interests.  They 
exert  material  influences  which  may  be  ruinous,  and 
moral  influences  which  can  be  even  more  destructive. 
After  men  have  become  addicted  to  habits  of  mendac- 
ity and  spoliation,  it  is  difficult  to  teach  them  not  to 
look  upon  the  services  that  they  render  as  pure  and 
simple  sources  of  remuneration. 


399 


CHAPTER    IV 

THE   STATE   A   DISHONEST   MAN 

I,  In  Foreign  Affairs  Machiavelli  Is  Still  Our  Moral 
Guide. — In  Domestic  Affairs  the  End  Justifies  the 
Means  for  Socialists  and  Interventionalists. — The 
Sovereignty  of  the  "End  in  View." 
2.  Bismarck,  Ramsay  Macdonald  and  the  Railways. — MM. 
Pelletan   and   Waddington. 

3.  Our  Professors  of  Law,   the   Heirs  of  the   Lawyers  of 

Philippe  Le  Bel. — Partial  Confiscation  of  the  Railways. 
— Approval  of  the  Principle  by  Paul  Pic. 

4.  The  Agreements  of  1883. — The  Guaranty  of  Interest  of 

the  Orléans  and  Midi  Railway  Lines  and  M.  Barthou. 
— Decree  of  the  Council  of  State. — The  Millerand 
Interpellation,  1895. — The  Political  Crisis. — Govern- 
mental Disregard  of  Judicial  Decisions. — Last  Re- 
source of  the  Orléans  Company. — The  Confirmatory 
Decree  of  the  Council  of  State  of  July  26,  1912. — An- 
archistic Lack  of  Conscience. 

5.  Giolitti    and    the    Insurance    Companies. — National    and 

International  Confiscation. — A  Legal  Excuse. — M. 
Jèze. — "An  Administrative  and  Not  a  Fiscal  Monop- 
oly."— A  Legal  Error. — Precedents  for  Confiscation. 
— Progress  Condemns  Precedents  of  Rapine  and  Vio- 
lence.— Return  to  Confiscation  a  Proof  of  Retrogres- 
sion.— Individual  Ownership  One  of  the  Conditions 
of  National  and  International  Law. — An  Error  of 
Fact. — Profits  of  the  Italian  Monopoly. 

6.  The  Italian   Law  of    1903. — Repeal  of   Municipal   Con- 

cessions.— The   Congress   of   Municipal   Undertakings. 
400 


THE    STATE    A    DISHONEST    MAN 

7.  The  Rambla  Case. 

8.  Equal   Tolls  on  the   Panama   Canal. — Article   8  of   the 

Clayton-Bulwer  Treaty. — The  Hay-P  auncefote 
Treaty. — Exemption  of  American  Ships  Engaged  in 
Coast  Trade.— The  Lodge  Bill.— Bad  Faith.— A  Lob- 
byist.— British  Protests. — Mr.  Taft. — Supreme  Court 
of  the  United  States. — Under  the  Circumstances 
There  Can  Be  No  Third  Disinterested  Party. 

9.  The  Discomfiture  of  the  New  York  Street  Railways. — 

Restrictive  Legislation  in  New  Jersey. — Police  Power, 
Private  Property,  and  Constitutional  Guaranties. 
ID.  Examples  of  a  Model   Employer. 

1.  It  is  still  generally  understood  that  in  matters  of 
foreign  policy  the  statesman  should  have  no  moral 
guide  other  than  Machiavelli.  In  regard  to  domestic 
affairs  the  unanimity  of  opinion  is  scarcely  so  perfect. 
Nevertheless,  statesmen  w^ho  believe  that  every  govern- 
ment ought  to  be  "an  honest  man"  are  still  the  excep- 
tion; and  not  alone  Socialists,  but  also  Interventional- 
ists  are  characterized  by  utter  unscrupulousness  v^^hen 
the  question  arises  of  substituting  collective  for  indi- 
vidual action.  The  end  justifies  the  means.  To  objec- 
tions made  in  the  name  of  property  rights  and  of  re- 
spect for  contracts,  the  end  in  viev^  is  declared  sov- 
ereign. Let  me  cite  a  few  characteristic  facts  in  proof 
of  such  a  statement. 

2.  Bismarck  organized  a  campaign  against  the  pri- 
vate railway  companies,  diverted  traffic  from  them, 
bought  their  stock  secretly,  and  molded  public  opinion 
into  favoring  the  purchase  he  had  planned. 

The  parliamentary  chairman  of  the  Labor  party  in 
Great  Britain,  J.  Ramsay  Macdonald,  in  a  debate  with 

401 


WHERE  AND  WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Hilaire  Belloc  in  Memorial  Hall,  said:  "M.  Belloc 
proposes  to  take  £19,000,000  ($92,530,000)  from  the 
excise  duties  in  order  to  purchase  railways.  Railway- 
stock  will  immediately  rise  to  a  ruinous  figure.  It 
would  be  better  to  bring  down  the  value  of  the  stock 
by  an  attack  upon  their  income."  ^ 

Bismarck  and  Ramsay  Macdonald  have  the  same 
moral  code  when  it  comes  to  government  action. 

In  France  Camille  Pelletan  has  declared  that  "con- 
tracts must  be  turned  topsy  turvy"  ;  and  even  moderates 
like  Richard  Waddington  share  his  opinion.^ 

3.  Advocates  can  be  found  for  any  cause.  It  is 
therefore  not  strange  that  legal  experts,  descendants 
of  the  lawyers  of  Philippe  Le  Bel,  maintain  that  the 
government  can  do  anything  since  it  creates  the  law. 
Legalists  like  R.  Jay  have  even  maintained  the  right 
of  the  state  to  expropriate  private  enterprises  without 
indemnity. 

As  long  as  ministers  respected  the  phrase,  "an  hon- 
est government,"  and  were  resolved  to  hold  to  the  con- 
tracts by  which  they  were  bound  to  private  companies, 
they  took  little  interest  in  the  labor  question.  The 
control,  organization  and  remuneration  of  employees 
was  regarded  as  the  affair  of  the  companies  con- 
cerned, and  not  of  the  minister. 

But  in  1897  the  Chamber  of  Deputies  passed  the 
Berteaux-Rabier-Joures  bill,  modifying  the  labor  con- 
ditions of  employees  and  giving  to  them  a  legal  right 

^Labour  Leader,  May   12,   191 1. 

*  See  Yves  Guyot,  Les  Chemins  de  Fer  et  la  Grève. 

402 


THE   STATE   A    DISHONEST    MAN 

to  the  customary  pension  after  20  years  of  service. 
From  that  moment  the  government  found  itself  de- 
fenseless. Since  then  railway  employees  have  learned 
to  go  to  their  deputies  with  their  demands.  The  dep- 
uty in  his  turn  will  bring  all  possible  influence  to  bear 
upon  the  government,  which,  under  this  pressure,  will 
tamper  with  the  existing  contracts.  Yet,  despite  the 
cracks  in  them,  the  contracts  still  hold.  Up  to  the 
present  the  government  has  not  been  able  to  impose 
upon  private  companies  the  reinstatements  of  dis- 
charged employees  to  which  the  state  system  has  been 
obliged  to  submit.  This  has  been  the  government's 
punishment  for  its  lack  of  respect  for  a  contract. 

The  rights  of  the  existing  private  railways  in  France 
have  been  directly  threatened  by  a  bill  introduced  by 
M.  Augagneur  at  the  beginning  of  November,  1912, 
and  thus  worded  : 

"Article  i. — Nomination  of  each  of  the  following  rail- 
way officials  shall  be  submitted  for  ratification  to  the 
minister  of  Public  Works  by  the  chairman  of  the  board 
of  directors  : 

"a.  Directors,  assistant  directors. 

"b.  Chiefs  of  the  administrative,  transportation  and 
supply  departments  of  the  road. 

"The  same  rule  shall  apply  to  employees  carrying  on 
for  the  time  being  the  duties  of  the  above-named  offi- 
cials for  a  period  of  not  less  than  three  months. 

"Nominations  shall  be  made  for  a  period  of  six  years 
and  shall  be  renewable. 

"Article  2. — All  modifications  of  the  administrative 
organization  of  the  roads  and  all  changes  in  the  duties  of 

403 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  employees  mentioned  in  Article   i   shall  be  subject 
to  the  ratification  of  the  minister  of  Public  Works. 

"Article  3. — If,  after  a  delay  of  three  months  from 
the  date  of  the  promulgation  of  the  present  law,  or  from 
the  date  of  a  vacancy  in  one  of  the  positions  mentioned 
in  Article  i,  the  minister  has  not  been  able  to  ratify 
the  names  proposed  by  the  companies,  he  shall  proceed 
with  the  duty  of  nomination  himself. 

"The  same  rule  shall  hold  if  the  ratification  of  the 
names  proposed  by  the  companies  has  not  been  made 
within  three  months  preceding  the  normal  end  of  the 
term  of  oflfice  of  the  employees  mentioned  in  Article  i. 

"Article  4. — After  a  delay  of  six  months  from  the 
date  of  the  promulgation  of  the  present  law,  the  com- 
panies shall  present  for  the  approval  of  the  minister 
of  Public  Works  : 

"i.  The  regulations  governing  the  administrative  or- 
ganization of  each  line  ; 

"2.  The  regulations  governing  the  methods  of  recruit- 
ing and  promotion,  as  well  as  the  salary  list,  of  em- 
ployees ; 

"3.  The  regulations  governing  organization  and 
methods  of  procedure  of  the  councils  of  discipline  and 
the  commissions  on  reforms. 

"All  modifications  of  the  regulations  so  approved  must 
likewise  be  ratified. 

"In  any  case  where  the  ratification  above  provided  for 
is  accorded  only  after  reservations  involving  modifica- 
tions or  additions  not  accepted  by  the  company,  the 
question  shall  be  decided  by  a  decree  of  the  Council  of 
State. 

"Infractions  of  the  present  law  shall  be  prosecuted 

404 


THE    STATE    A    DISHONEST    MAN 

and  punished  in  conformity  with  the  provisions  of  Sec- 
tion III  of  the  Ordinance  of  November  15,  1846." 

The  above  plan  of  partial  confiscation  is  a  bold  vio- 
lation of  the  contracts  betw^een  the  government  and 
the  companies.  Nevertheless,  Paul  Pic,  professor  of 
industrial  law  at  Lyon,  does  not  hesitate  to  declare 
that  "this  measure  is  in  itself  perfectly  justifiable." 
As,  however,  "it  would  run  the  risk  of  leading  us  into 
a  precipitate  purchase  of  all  the  lines,  as  well  as  on 
account  of  the  strenuous  resistance  of  the  companies," 
he  advises  a  delay.  ^ 

4.  Few  ministers  have  any  desire  to  adhere  loyally 
to  the  contracts  of  1883  with  the  railway  companies. 
In  1894  M.  Barthou,  then  minister  of  Public  Works, 
on  the  occasion  of  a  bond  issue  by  the  Orléans  line, 
ordered  the  company  to  add  to  the  notices  relative  to 
the  guaranty  of  interest  an  announcement  that  this 
guaranty  would  expire  in  19 14.  The  company  re- 
ferred the  question  to  the  Council  of  State,  holding 
that  the  government  had  granted  this  guaranty  not 
only  up  to  1914,  but  to  the  expiration  of  its  franchise, 
in  1956.  By  a  decree  of  January  11,  1895,  based  on 
opinions  rendered  by  M.  Mayliel  and  M.  Jagerschmidt, 
the  council  of  state  handed  down  a  decision  in  favor 
of  the  company. 

We  give  the  final  summing  up  and  the  provisions 
of  this  decree  of  1895  : 

"Under  the  circumstances,  it  must  be  acknowledged 
that  the  guaranty  of  the  railway  company  from  Paris  to 

^  Les  Grandes  Regies  d'État,  by  Paul  Pic,  Revue  d'Économie 
Politique,  July-August,  1912. 

405 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

Orléans  has  a  period  to  run  equal  to  that  of  its  fran- 
chise, and  that,  by  requesting  the  company  to  specify 
upon  its  bonds  that  this  guaranty  will  end  on  December 
31,  1914,  the  minister  of  Public  Works  has  misinterpreted 
the  rights  of  the  company  arising  from  the  contract  of 
June  28,  1883.  It  is  decided,  therefore,  that  the  order 
of  the  minister  directing  the  company  to  add  to  its 
notices  relative  to  the  guaranty  of  bonds  an  announce- 
ment that  this  guaranty  will  expire  December  31,  1914, 
be  annulled." 

Instead  of  submitting  gracefully  to  this  decree,  M. 
Barthou  handed  in  his  resignation  as  minister  of  Pub- 
lic Works.  On  January  14,  M.  Millerand  called  Min- 
ister Dupuy  to  account  as  having  failed  in  his  duty  in 
not  enforcing  the  ministerial  order,  and  ultimately  the 
Dupuy  ministry  fell  because  it  refused  to  disobey  the 
decree  of  the  Council  of  State  even  at  the  urgent  de- 
mand of  its  party.  Thus  the  Council  of  State  over- 
threw a  minister  and  afterward  a  ministry,  while  the 
affair  led  further  to  the  resignation  of  Casimir  Perier, 
President  of  the  Republic. 

The  Chamber  of  Deputies,  in  order  to  appear  to  be 
doing  something,  appointed  a  commission  charged 
with  discovering  whether  there  was  any  cause  for  the 
prosecution  of  M.  Raynal,  who,  as  minister  of  Public 
Works  in  1883,  had  signed  the  original  railway  con- 
tracts, for  high  crimes  and  misdemeanors  committed 
during  his  term  of  public  office.  In  conformity  with 
the  unanimous  opinion  of  the  members  of  the  commis- 
sion, M.  Raynal  was  not  prosecuted. 

Despite  the  definite  character  of  the  decree  of  1895, 
the  ministry  of  Public  Works,  in  an  official  publication 

406 


THE   STATE   A   DISHONEST    MAN 

of  the  Statistique  des  Chemins  de  Fer  Français,  sub- 
division 9,  bearing  the  title,  Conditions  Principales 
des  Concessions,  has  continued  to  declare  that  the  guar- 
anty period  of  the  Orléans  and  the  Midi  companies 
would  expire  December  31,  19 14. 

On  March  16,  in  the  Chamber,  Maurice  Sibille  hav- 
ing referred  to  the  claim  of  the  government  that  the 
guaranty  would  expire  December  31,  191 4,  the  minis- 
ter of  Finance  exclaimed  :  "There  is  no  question  about 
it."  Thus  we  see  the  ministry  testifying  to  its  exalted 
respect  for  the  decision  of  the  Council  of  State. 

In  the  belief,  however,  that  the  question  had  been 
settled  by  the  decree  of  1895,  but  wishing  to  avoid  any 
misundertanding  as  to  its  credit,  the  Orléans  company 
demanded  from  the  minister  authority  to  publish  upon 
its  bonds  a  notice  indicating  that  the  guaranty  would 
expire  only  with  the  franchise  in  1956.  Upon  the  re- 
fusal of  the  minister,  the  case  went  back  again  to 
the  Council  of  State,  which,  by  a  decree  rendered 
July  26,  19 1 2,  decided,  as  in  its  previous  decree  of 
1895,  in  favor  of  the  company. 

The  position  finally  taken  by  the  ministry  was  that 
litigation  could  not  be  considered  as  existing  in  fact 
until  1 9 14,  the  year  which,  according  to  the  govern- 
ment, would  see  the  end  of  the  guaranty. 

5.  In  Italy,  as  we  have  already  seen,^  M.  Giolitti 
was  anxious  to  follow  the  example  of  Germany, 
France  and  Great  Britain  in  establishing  old-age  pen- 
sions. But  where  should  he  find  the  resources  ?  Noth- 
ing simpler.     The  insurance  companies  were  earning 

'  See  above,  Book  I,  Chapter  23, 
407 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

dividends.  The  state  must  force  them  out  and  sub- 
stitute itself  for  them. 

While  shrewd  Socialists  were  disputing  whether 
the  various  phases  of  expropriation  should  be  brought 
about  with  or  without  indemnity,  M.  Giolitti  decided 
the  question  :  No  indemnity  for  existing  insurance 
companies.  The  Italian  companies  were  forced  to  bow 
before  the  "mightier  than  thou"  of  the  government. 

But  it  was  quite  another  matter  in  the  case  of  the 
foreign  insurance  companies.  The  Italian  govern- 
ment, however,  remained  deaf  to  the  protests  of  the 
English,  French  and  German  governments. 

This  abuse  of  power,  as  a  preliminary  to  the  insur- 
ance law,  inspires  no  great  confidence  in  the  govern- 
ment's respect  for  acquired  rights.  Moreover,  why 
should  this  respect  be  any  greater  with  regard  to  those 
who  insure  themselves  with  the  state  ?  The  seizure  by 
the  French  government  of  the  funds  of  the  "Invali- 
des" ^  is  notorious.  Undoubtedly  the  major  part  of 
the  returns  from  the  monopoly  will  go  into  the  coffers 
of  the  Italian  government. 

The  Italian  government  refused  all  compensation 
to  foreign  companies,  judging — and  rightly — that 
their  several  governments  would  not  go  to  war  over 
so  small  a  question  and  that,  consequently,  it  need  take 
no  account  of  protests  nor  admit  of  any  international 
jurisdiction.  Thus  its  Socialist  character  is  given  the 
final  touch  and  proof  is  given  thereby  that  expropria- 
tion without  indemnity  may  be  not  only  national  but 
international. 

According  to  M.  Jèze,  professor  of  financial  law  in 

*  A  navy  relief  fund. 

408 


THE    STATE    A    DISHONEST    MAN 

the  University  of  Paris,  if  the  affair  had  been 
brought  before  the  tribunal  at  The  Hague,  Italy  "could 
claim  that  the  monopoly  so  constituted  is  an  adminis- 
trative, and  not  a  fiscal  monopoly,  as  an  excuse  for  not 
having  paid  an  indemnity." 

I  respect  M.  Jèze's  opinion.  But  from  the  point  of 
view  of  the  wrong  done  me  by  the  state,  what  differ- 
ence docs  it  make  what  excuse  the  state  offers  me? 
According  to  the  premise  of  M.  Jèze,  the  state  would 
have  the  right  to  confiscate  anything  from  which  it 
could  draw  a  profit.  The  state  could  seize  my  meadow 
to  set  up  target  practice  without  paying  me  anything. 
Article  545  of  the  Civil  Code  says  :  "No  one  can  be 
compelled  to  give  up  his  property  except  in  behalf  of 
the  public  interest  after  a  just  compensation  has  been 
paid."  Business,  the  foundation  of  commerce,  con- 
stitutes property  as  certainly  as  real  estate.  The  state 
has  no  more  right  to  confiscate  the  one  than  the  other 
under  any  system  which  rests  on  respect  for  private 
property. 

M.  Jèze  relies  for  a  precedent  on  the  prohibition  of 
the  use  of  white  lead,  which  resulted  from  a  serious 
agitation  on  the  part  of  a  number  of  competitors  con- 
ducted by  a  member  of  the  Labor  Confederation.  The 
whole  matter  proved  nothing  but  the  shameful  cow- 
ardice of  the  French  Parliament.^  The  prohibition  of 
the  use  of  white  phosphorus  in  the  manufacture  of 
matches  is  based  on  a  foolish  prejudice  contradicted  by 
the  facts.  As  for  the  prohibition  of  the  sale  of  ab- 
sinthe, it  must  be  acknowledged  that  that  one  act  on 

*  Yves  Guyot,  La  Ceruse  et  la  Méthode  Expérimentale.  Bro- 
chure, Paris,  F,  Alcan. 

409 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

the  part  of  the  state  does  constitute  a  precedent  in  fa- 
vor of  the  arguments  of  M.  Jèze;  but  human  progress 
in  all  the  epochs  of  history  condemns  precedents  of 
rapine  and  violence  committed  by  governments  against 
individuals.  A  return  to  the  medicneval  customs  of  con- 
fiscation can  indicate  nothing  but  retrogression. 

M.  Jèze  is  right  in  thinking  that  the  limitation  of 
hours  and  working  days,  as  well  as  the  minimum 
wage,  are  partial  confiscation.  But  he  is  also  present- 
ing a  formidable  argument  against  all  legislation  called 
social,  which  is,  in  fact,  only  a  step  toward  the  sup- 
pression of  individual  property  and  the  introduction 
of  Socialism.  Our  codes  are  still  founded  on  respect 
for  personal  property,  however,  and  he  acknowledges 
that  such  respect  is  one  of  the  indispensable  conditions 
of  international  law. 

Therefore  the  Italian  government  has  been  guilty 
of  an  abuse  of  power  in  confiscating  the  business  of 
life  insurance  companies;  and,  in  the  case  of  the  for- 
eign companies,  at  least,  it  owes  them  some  reparation. 

The  argument  that  the  Italian  government  did  not 
expect  to  draw  any  profit  from  the  insurance  monop- 
oly is  inaccurate.  If  there  had  been  no  hope  of  reap- 
ing any  profit  the  monopoly  would  never  have  been 
created. 

Article  14  of  the  law  provides  that  there  shall  be 
taken  out  of  the  net  annual  profits:  (a)  A  sum  of  at 
least  I  per  cent.,  which  shall  be  devoted  to  the  ordi- 
nary reserve;  (b)  a  sum  to  be  applied,  in  conformity 
with  the  statutes,  to  the  guaranty  reserve  and  any  other 
contingent  reserve;  (c)  a  sum  to  be  assigned  to  the 
administrative,   technical,   and   soliciting  staff  of   the 

410 


THE    STATE    A    DISHONEST    MAN 

Fund.  This  sum  shall  be  less  than  5  per  cent.  The 
remainder  of  the  profits  will  be  paid  into  the  National 
Insurance  reserve  for  invalid  and  aged  workingmen. 
The  profits  of  the  National  Fund  are  to  be  exempt 
from  the  income  tax. 

Thus  the  law  indicates  in  every  line  that  the  mo- 
nopoly is  expected  to  be  profitable.  Not  only  does  it 
dispose  of  these  profits  but  it  exempts  them  from 
taxation. 

In  the  Bulletin  de  I'Institute  International  d'Agri- 
culture, edited  in  part  under  the  direction  of  the  minis- 
try of  Agriculture,  I  find  an  article  which  proclaims 
the  new  law  to  the  world  in  the  following  phrases  : 

"The  ultimate  purpose  of  the  new  law  is  to  create 
another  source  of  revenue  for  the  government  by  the 
monopoly  on  life  insurance."     (May,  191 2,  page  51.) 

In  the  light  of  these  excerpts,  what  becomes  of  the 
argument  of  M.  Jcze,  based  on  the  disinterested  aims 
of  the  life  insurance  monopoly? 

The  same  article  also  contains  the  statement  that 
the  law  is  designed  "especially  to  devote  the  profits 
arising  from  this  monopoly"  to  the  insurance  fund  for 
pensions. 

M.  Jèze  has  set  down  an  error  of  fact  in  order  to 
justify  a  legal  theory  based  on  nothing  but  a  casuist's 
distinction. 

6.  The  law  of  March  29,  1903,  gives  to  the  Italian 
local  governments  authority  to  buy  up  franchises  what- 
ever may  be  the  time  they  have  still  to  run.  M.  Gio- 
litti,  the  author  of  the  law,  said  :    "This  is  not  a  ques- 

411 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tion  of  expropriation,  nor  of  lease,  but  a  question  of 
the  repeal  of  a  franchise  in  the  public  interest  :  and 
this  difference  permits  us  to  be  more  liberal  toward 
the  municipality  which  makes  use  of  its  full  right  of 
appeal." 

What  is  this  right  of  appeal,  except  the  breaking  of 
a  contract  by  one  of  the  parties  to  it?  And  because 
it  suits  the  convenience  of  this  party  to  break  the  con- 
tract, it  is  necessary  "to  be  very  liberal  with  it."  What 
are  the  guaranties  of  the  other  party? 

Article  21  declares  that  the  right  of  repeal  exists 
after  a  third  of  the  period  of  the  full  duration  of  the 
franchise  may  have  elapsed  ;  in  any  case,  after  20  years, 
but  never  before.  The  article  adds  that  municipalities 
must  pay  an  equitable  indemnity  in  which  the  follow- 
ing items  shall  be  taken  into  account  : 

First  :  The  value  of  the  installation  and  its  equip- 
ment. Second  :  Advances  and  subsidies  paid  on  pre- 
miums by  the  municipality.  Third:  Loss  of  profits  re- 
duced to  the  present  value  (at  the  legal  rate  of  inter- 
est) of  annual  sums  equal  to  the  average  of  the  profits 
for  the  five  years  last  past  for  as  many  years  as  the  con- 
cession has  still  to  run,  the  number  of  years,  neverthe- 
less, not  to  be  more  than  twenty — the  amount  of  these 
annual  sums  to  be  based  on  the  average  of  the  net  rev- 
enues reported  in  the  personal  property  tax  declara- 
tions, omitting  the  years  of  maximum  and  minimum 
profits  and  deducting  interest  on  capital. 

At  the  first  congress  of  Italian  municipal  undertak- 
ings a  lawyer.  David  Ferrari,  protested  in  a  long  re- 
port against  the  third  paragraph  of  the  article  above 
quoted,  which  he  declared  opposed  to  the  spirit  of  the 

412 


THE    STATE    A    DISHONEST    MAN 

law.  The  profit  arises  from  the  concession.  When  the 
concession  ceases  so  does  the  profit.  Therefore,  the 
"basis  of  the  accumulation  of  surplus  profits  by  reason 
of  the  duration  of  the  concession"  ought  to  be  struck 
out.  Another  lawyer,  Mario  Cattaneo,  was  astonished 
"that  on  the  sole  ground  that  one  of  the  parties  was  a 
public  body  such  an  attack  could  be  made  on  the  doc- 
trine of  the  inviolability  of  private  property."  He  de- 
manded, therefore,  that  "respect  be  shown  in  the  case 
of  existing  contracts  to  all  the  rules  of  private  law," 
and  that  the  bill  be  applied  to  future  contracts  only. 
The  congress  adopted  unanimously  the  conclusion  of 
the  Ferrari  report,  demanding  that  "the  basis  of  the 
accumulation  of  surplus  profit  by  reason  of  the  dura- 
tion of  the  franchise"  be  omitted. 

During  the  second  congress,  held  in  Rome  in  June, 
191 1,  Giovanni  Montemartini,  attached  to  the  mayor- 
alty of  Rome,  insisted  upon  the  necessity  of  still  fur- 
ther modifying  the  law  of  1903. 

7.  Here  we  have  a  new  example  of  government  mo- 
rale : 

The  president  of  Uruguay,  M.  Battle  y  Ordonez, 
a  partisan  of  the  extension  of  state  activities,  desired 
to  establish  a  national  bank.  Then,  in  order  to  give 
his  bank  the  credit  indispensable  to  institutions  of  simi- 
lar character,  he  proceeded  to  teach  everybody  what 
fools  they  would  be  to  trust  to  contracts  entered  into 
with  Uruguay  by  giving  them  an  object  lesson  in  the 
so-called  "Rambla  afïair." 

Now  a  tyrant  can  do  many  things — anything  he 
may  choose,  if  you  will.     But  a  state,  however  tyran- 

413 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

nical  it  may  be  in  spirit,  may  come  in  contact  with  one 
insurmountable  obstacle.    Confidence  cannot  be  forced. 

The  trouble  which  has  arisen  between  the  Rambla 
Company  and  the  government  of  Uruguay  has  served 
to  prove  that  the  latter  has  either  never  heard  of  or 
never  pondered  the  precept  of  M.  Thiers  :  "The 
state  must  act  like  an  honest  man." 

In  June,  1913,  the  Matin  published  an  account  of 
the  Rambla  affair,  which  I  summarize  : 

In  1910  an  Anglo-French  association,  known  as  the 
Rambla  Company,  had  renewed  a  franchise  and  a  con- 
tract dating  from  1899.  ^^s  object  was  the  acquisition 
of  145  hectares  (358  acres)  close  to  the  sea  for  the 
construction  of  a  public  promenade  (Rambla). 

Of  the  42,500,000  francs  which  the  work  was  to 
require,  35,000,000  francs  was  guaranteed,  capital  and 
interest,  by  the  state  of  Uruguay. 

There  appeared  to  be  entire  harmony  among  the 
parties  to  the  affair  ;  yet,  at  the  last  moment,  the  Uru- 
guayan government  refused  to  sign  the  contract  unless 
an  article  (No.  3),  containing  an  acknowledgment  on 
the  part  of  the  company  of  the  right  of  the  state  to  in- 
troduce such  modifications  into  the  plans  as  it  should 
deem  fitting  were  inserted. 

That  the  company  was  imprudent  enough  to  con- 
sent to  this  clause  has  never  been  denied;  but  it  had 
this  excuse  at  least.  It  trusted  the  state  to  act  like 
an  honest  man. 

The  utter  lack  of  any  basis  for  such  confidence  was 
almost  immediately  proved  when  the  state  issued  a 
decree  adding  to  the  specifications  the  taking  over  by 
the  company  of  137  hectares  (338  acres)   facing  the 

414 


THE   STATE    A    DISHONEST    MAN 

sea,  80  hectares  (  198  acres  )  of  which  it  put  up  for  sale. 
The  minister  of  Pubhc  Works  called  this  a  slight  modi- 
fication. 

The  company  has  determined  to  resist  the  demands 
of  the  government  of  Uruguay,  and  has  claimed  the  in- 
tervention of  the  English  and  French  governments. 
These  governments  can,  of  course,  enter  remon- 
strances, but  it  would  be  a  mistake  to  hope  for  much 
efïect  from  them. 

The  party  most  interested  in  not  violating  its  con- 
tract would  seem  to  be  Uruguay,  for  the  principal 
guaranty  that  foreign  creditors  or  parties  to  contracts 
with  the  state  have  is  the  self-interest  of  every  gov- 
ernment in  not  ruining  its  own  credit. 

8.  The  United  States  has  always  considered  that  a 
canal  between  the  Atlantic  and  Pacific  oceans  was 
among  the  probabilities  of  the  future.  In  1835  the 
Senate  ordered  the  President  to  open  negotiations  with 
the  governments  of  other  nations,  and  more  especially 
with  those  of  Central  America  and  New  Granada,  with 
the  object  of  giving  efficient  protection  to  the  promo- 
ters of  such  a  canal. 

A  similar  resolution  was  adopted  by  the  House  of 
Representatives,  in  1839,  following  a  petition  from  the 
merchants  of  New  York  and  Philadelphia.  In  1849 
ratifications  of  a  treaty  between  the  United  States  and 
the  Republic  of  New  Granada,  subsequently  and  suc- 
cessively known  as  the  United  States  of  Colombia  and 
the  Republic  of  Colombia,  were  exchanged,  of  which 
the  principal  provision  was  the  guaranty  of  the  neu- 
trality of  the  Panama  Canal. 

415 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

April  19,  1850,  John  M.  Clayton,  secretary  of  state, 
and  Sir  Henry  Bulwer-Lytton.  British  minister  to 
Washington,  signed  the  treaty  relative  to  the  canal  that 
an  American  company  had  undertaken  to  construct  by 
making  use  of  the  St.  John  River  of  Nicaragua.  This 
treaty  specified  that  the  United  States  should  act  as  a 
trustee  for  the  other  nations,  but  that  all  the  nations 
should  have  the  same  privileges  in  the  use  of  the  canal. 
In  transmitting  this  treaty  to  the  Senate  President  Polk 
emphasized  the  provision  for  equal  rights,  assured  by 
Article  8  of  the  treaty. 

This  Article  8  was  again  expressly  endorsed  in  the 
declaration  preceding  the  Hay-Pauncefote  treaty,  con- 
cluded on  November  18,  1901,  when  the  American  gov- 
ernment took  over  the  completion  of  the  Panama  Canal. 
Moreover,  it  had  been  previously  confirmed  by  the 
declaration  of  President  Cleveland,  in  his  message  of 
1885: 

"Any  passage  of  communication  between  the  two 
oceans  ought  to  redound  to  the  advantage  of  the  entire 
world  for  the  benefit  of  humanity.  It  ought  to  be  re- 
moved from  all  risks  of  domination  by  a  single  power. 
It  ought  never  to  become  an  occasion  for  hostility  or  the 
prize  of  warring  ambitions." 

Nowhere,  in  the  various  diplomatic  acts  of  the  Uni- 
ted States  can  there  be  found  any  reserve  in  favor  of 
special  advantages  for  certain  ships  of  certain  nations. 
Nevertheless,  in  the  House  of  Representatives  and  in 
the  Senate  of  the  United  States,  in  the  summer  of 
19 1 2,  various  proposals  were  discussed  looking  to  the 

416 


THE    STATE    A    DISFIONEST    MAN 

exemption  of  American  ships  from  the  tolls  which 
must  be  paid  by  the  ships  of  other  nations. 

Finally  the  House  of  Representatives  adopted  a 
resolution  declaring  that  no  toll  should  be  levied  upon 
American  ships  engaged  in  the  coasting  trade.  Later 
another  clause  was  introduced  into  the  bill  providing 
"that  no  toll  shall  be  levied  upon  American  ships, 
which,  while  engaged  in  the  transport  of  merchandise, 
can  be  requisitioned  by  the  President,  with  the  consent 
of  the  owners,  in  case  of  war  or  public  need."  Sena- 
tor Lodge,  in  the  month  of  December,  191 1,  had  sug- 
gested even  more  skilful  tactics  :  American  ships 
passing  through  the  canal  should  indeed  pay  duties; 
thus  the  Hay-Pauncefote  treaty  would  be  respected  to 
the  letter.  But  the  United  States  should  reimburse 
these  ships  at  the  public  expense.  For  a  long  time  the 
protectionists  had  been  demanding  subsidies  for  the 
United  States  merchant  marine.  The  occasion  was, 
therefore,  too  good  to  be  lost.  The  other  nations  could 
scarcely  protest  against  a  granting  of  subsidies  to  her 
merchant  marine  by  the  United  States. 

"All  these  schemes  to  escape  the  obligations  of  the 
treaty,"  says  the  New  York  Journal  of  Conimcrce, 
"will  be  considered  as  acts  of  bad  faith.  The  cam- 
paign for  the  violation  of  the  Hay-Pauncefote  treaty 
has  been  engineered  by  a  lobbyist,  who  receives  a  salary 
of  $25,0(X)  a  year,  and  unlimited  credit  with  the  mem- 
bers of  Congress." 

In  order  to  justify  them  appeal  has  been  made  to  the 
Monroe  Doctrine,  but  Monroe  never  dreamed  that  the 
doctrine  bearing  his  name  would  ever  be  given  such 
a  broad  construction. 

417 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

The  bill,  as  finally  passed  by  the  House  of  Represen- 
tatives, extended  that  provision  of  the  Interstate  Com- 
merce Act  which  forbids  any  railway  company  to  have 
an  interest  in  "any  method  of  water  transportation" 
which  "is  or  can  be  a  competitor."  However,  the  Sen- 
ate justly  decided  that  there  was  no  analogy,  and 
therefore  substituted  for  that  particular  clause  the  fol- 
lowing provision  :  "No  ship  possessed  or  controlled  by 
a  railway,  or  in  which  a  railway  may  have  any  in- 
terest, will  be  admitted  into  the  canal,  if  it  is  engaged  in 
the  United  States  coast  trade." 

On  the  strength  of  the  Hay-Pauncefote  treaty 
Great  Britain  addressed  a  protest  to  the  United  States 
government.  The  Secretary  of  State,  Mr.  Knox, 
transmitted  it  to  the  senate  : 

"According  to  the  document  in  question,  the  govern- 
ment of  his  Britannic  Majesty  is  of  opinion  that  the 
act  exempting  the  American  merchant  marine  from  the 
payment  of  duty  would  constitute  an  infraction  of  the 
Treaty,  and  that,  if  the  duties  were  only  collected  in 
order  to  be  immediately  refunded,  the  principle  would  be 
the  same  as  though  these  duties  were  altogether  abol- 
ished. 

"The  opinion  is  also  expressed  in  this  document  that 
to  collect  duties  in  order  to  refund  them  immediately, 
although  not  contrary  to  the  letter  of  the  Treaty,  would 
be  in  opposition  to  its  spirit.  It  is  admitted  that  there  is 
nothing  in  the  Hay-Pauncefote  Treaty  which  prevents 
the  United  States  from  subsidizing  its  merchant  marine, 
but  it  is  claimed  that  a  great  difference  exists  between 
a  general  subsidy  of  the  entire  merchant  marine  and  that 
of  a  part  only,  engaged  in  a  special  branch  of  the  service, 
and  a  proportional  subsidy  reckoned  according  to  the 

418 


THE   STATE    A    DISHONEST    MAN 

frequency  of  the  passages  through  the  canal  of  the  ships 
so  subsidized. 

"Such  a  subsidy  could  not,  in  the  opinion  of  the  gov- 
ernment of  his  Britannic  Majesty,  be  in  conformity  with 
the  obligations  of  the  Treaty. 

"In  so  far  as  the  bill  exempting  the  ships  engaged  in 
the  coasting  trade  is  concerned,  the  document  declares 
that  no  objection  would  be  made  if  navigation  were 
organized  in  such  fashion  that  only  those  ships  actually 
devoted  to  the  coasting  trade  reserved  for  American 
ships  would  benefit  by  this  exemption.  It  appears,  never- 
theless, that  the  government  of  his  Majesty  considers 
as  impossible  the  establishment  of  regulations  tending 
to  discriminate  between  coastwise  and  other  American 
ships  ;  consequently  this  exemption  would  be  an  infrac- 
tion of  the  Treaty." 

The  United  States  Senate  voted,  by  a  large  majority, 
August  8,  19 1 2,  in  favor  of  the  clause  exempting  the 
ships  of  the  United  States  engaged  in  the  coasting 
trade  from  all  tolls. 

Moreover,  the  majority  which  voted  for  the  viola- 
tion of  the  Hay-Pauncefote  Treaty  declared  that  it 
would  refuse  to  submit  the  question  of  treaty  violation 
to  arbitration.  Its  members  declared  that  "this  ques- 
tion is  not  a  diplomatic  one,"  under  the  pretext  that 
the  exemption  concerned  only  American  ships  engaged 
in  the  coasting  trade;  and  that  it  was,  therefore,  a 
question  of  a  domestic  nature,  of  no  interest  to  any 
foreign  power,  and,  consequently,  does  not  come  under 
the  jurisdiction  of  The  Hague  tribunal.  It  is  easy  to 
understand  why  the  majority  of  the  senators  waived 
arbitration   in   this   connection.      The   United    States 

419 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

would  have  found  itself  alone  on  the  one  side  and  all 
the  rest  of  the  world  on  the  other. 

The  whole  situation  has  been  summed  up  in  the 
clearest  possible  manner  by  Senators  Root  of  New 
York,  Burton  of  Ohio,  and  McCumber  of  North  Da- 
kota, all  of  whom  made  the  antithesis  perfectly  clear: 
After  having  accepted  every  advantage  of  the  Hay- 
Pauncefote  treaty,  the  United  States  refuses  to  accept 
any  of  its  responsibilities. 

But  Senators  Cummins,  Works,  and  Chamberlain 
answered  without  the  smallest  attempt  at  a  hypocriti- 
cal softening  of  their  argument: — "The  Hay-Paunce- 
fote  treaty  has  done  nothing  for  us,  and,  as  it  is  in  our 
way,  there  is  nothing  to  do  but  to  break  it." 

The  Evening  Post,  of  New  York,  was  entirely  right 
in  saying:  "The  vote  of  the  Senate  does  a  greater  in- 
jury to  the  United  States  than  that  which  would  have 
resulted  from  a  naval  defeat  in  the  waters  of  Colom- 
bia." It  is  true  that  it  is  only  a  moral  defeat;  and  un- 
scrupulous Machiavellis  will  never  be  able  to  under- 
stand the  harm  that  a  defeat  of  this  nature  can  bring 
to  their  country  because,  as  a  general  rule,  the  conse- 
quences are  not  felt  until  a  long  time  afterward. 

This  was  the  time  for  Mr.  Taft  to  show  himself  a 
great  statesman.  But  the  dispatches  immediately  an- 
nounced that,  if  the  Senate  and  the  House  of  Represen- 
tatives were  in  accord,  he  would  sign  the  bill  while 
recognizing  the  right  of  foreign  states  to  appeal  to 
the  Supreme  Court  of  the  United  States. 

It  is  now  announced  that  Mr.  Wilson  will  not  follow 
the  example  of  his  predecessor.  We  must  give  him 
credit  for  that. 

420 


THE    STATE    A    DISHONEST    MAN 

I  have  the  utmost  respect  for  the  Supreme  Court, ^ 
but  this  Supreme  Court  is  composed  of  nine  American 
judges,  sitting  in  America,  and,  in  this  particular  case, 
its  judgment  must  necessarily  be  tinged,  and  very 
strongly,  with  an  excusable  bias.  It  forms  a  part  of 
one  of  the  parties  to  the  issue,  and  it  cannot  be  con- 
sidered as  a  disinterested  third  party. 

It  is  true,  and  this  is  the  weakness  of  The  Hague 
tribunal  in  regard  to  this  question,  that  there  is  no  dis- 
interested third  party,  because  all  the  nations  have  an 
interest  opposed  to  that  of  the  United  States.  And 
we  must  admit  also  that,  from  the  point  of  view 
of  domestic  policy,  the  political  bodies  of  the  various 
states  have  not  always  shown  themselves  more  scru- 
pulous. 

9.  In  a  protest,  addressed  to  a  committee  of  the 
State  Senate,  Frank  Bergen,  general  counsel  for  the 
Public  Service  Corporation  of  New  Jersey,  accuses  the 
partisans  of  the  municipalization  of  the  street  railways 
of  New  York  "of  being  delighted  with  their  (viz.,  the 
Public  Service  Corporation's)  discomfiture"  brought 
about  by  laws  passed  to  obtain  just  such  a  result. 
Private  enterprises  having  developed  to  an  enormous 
proportion  the  state  property  of  New  Jersey,  from 
1870  to  1906,  members  of  the  State  Senate  felt  that  the 
moment  had  come  to  confiscate  them.  Toward  this  end 
Senator  Hunderton  proposed  Amendment  64  to  the 
Crimes  Act,  drawn  up  in  such  a  manner  "that  inno- 

'  See  Les  Principes  de  '8ç  et  le  Socialisme.  La  Démocratie 
Individualiste. 

421 


WHERE  AND    WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

cence  no  longer  constitutes  a  defense  against  a  crimi- 
nal accusation."  ^ 

Justice  Brewer,  of  the  Supreme  Court  of  the  United 
States,  has  declared  : 

"The  police  power  has  become  the  refuge  of  every 
serious  attack  against  private  property.  Every  unjusti- 
fiable charge  from  the  point  of  view  of  eminent  domain, 
or  from  the  fiscal  point  of  view,  shelters  itself  behind 
the  excuse  of  police  power;  but  the  police  power  cannot 
escape  from  the  constitutional  guaranties  of  private 
property." 

Hygiene,  sanitation,  "the  conservation  of  the  race," 
etc.,  are  only  new  forms  of  the  cry  of  sains  populi 
which  has  served  to  justify  all  the  tyrannies  of  the  ages. 

lo.  The  "model  employer"  furnishes  some  very  bad 
examples.  Those  who  speak  in  its  name  can  preach 
economy  to  individuals  ;  but  they  cannot  hold  it  up 
as  a  model,  because  it  is  wasteful  and  runs  into  debt. 
Its  partisans  can  preach  economic  morality  to  indi- 
viduals ;  but  they  cannot  illustrate  their  texts  by  ap- 
pealing to  state  morality,  because  the  state  too  often 
"acts  like  a  dishonest  man,"  not  only  in  foreign  affairs, 
but  even  in  domestic  affairs. 

^Annals  of  the  American  Academy  of  Political  and  Social 
Science,  May,  1908.  Legislative  Restriction  in  New  York,  page 
134- 


422 


CHAPTER  V 

CORRUPTION 

Multiplication  of  Opportunities  for  Corruption. — The  Ger- 
man Railways. — Mr.  Seddon  on  New  Zealand. — Taussig. 
— Dangers  of  Public  Enterprises  in  a  Democracy. — 
Ring  Leaders. — Importance  of  Their  Rôle. — The  Way 
to  Succeed. 

The  more  governments  and  municipalities  increase 
their  functions  and  interfere  with  the  economic  life 
of  the  group  the  more  the  opportunities  for  corruption 
will  multiply. 

M.  de  Miquel,  Prussian  minister  of  Finance,  who 
was  compelled  to  hand  in  his  resignation  after  the 
failure  of  the  Imperial  Canal  projects,  declared  some 
time  afterward  : 

"If  the  separate  government  railways  become  the  prop- 
erty of  the  Empire,  the  Reichstag  will  claim  the  right  of 
establishing  and  revising  railway  rates.  The  day  on 
which  it  obtains  this  right  will  see  the  beginning  of  cor- 
ruption on  a  grand  scale  in  the  German  elections.  Al- 
ready the  temper  of  a  large  number  of  the  electors  is 
such  that  they  are  sending  to  the  Reichstag  many  repre- 
sentatives who  never  ask  how  any  given  measure  will 
serve  the  interest  of  the  nation  at  large,  but  simply  how 
it  is  going  to  be  regarded  by  their  local  constituents. 
The  concession  to  the  Reichstag  of  the  right  to  fix  the 

423 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

railway  rates  would  be  as  disastrous  for  our  whole  po- 
litical life  as  for  the  economic  development  of  Ger- 
many."^ 

In  their  book  on  New  Zealand  Le  Rossignol  and 
Stewart  say: 

"He  (the  Right  Hon.  R.  J.  Seddon)  taught  the  people 
in  every  part  of  the  colony  to  'stand  in'  with  the  govern- 
ment if  they  wished  to  be  remembered  in  the  distribution 
of  the  loaves  and  fishes." 

Thanks  to  this  practice,  Mr.  Seddon  himself  man- 
aged to  remain  at  the  head  of  affairs  for  a  very  long 
time. 

Concerning  the  administration  by  the  state  or  mu- 
nicipalities of  "public  service  industries,"  F.  W.  Taus- 
sig ^  observes  that  the  title  is  applied  to  certain  enter- 
prises only,  as  railways,  telephones  and  telegraph, 
water,  gas  and  electricity.  In  the  very  beginning,  in 
the  United  States,  competing  private  enterprises  had 
invariably  provided  these  services.  Little  by  little,  by 
virtue  of  the  law  of  increase  of  returns,  these  enter- 
prises united. 

Here  we  meet  again  the  third  incentive  of  all  human 
action.  "For  all  except  the  very  few  of  extraordinary 
gifts,  the  spur  of  gain  is  not  only  powerful,  it  is  indis- 
pensable." Progress  in  industry  is  largely  due  to  in- 
ventors and  administrators,  but  the  venturesome  capi- 
talist, ready  and  eager  to  risk  his  wealth  in  new  ways, 

'  See  the  discussion  relating  to  the  Prussian   railways  in  the 
series  of  volumes,  Le  Marche  Financier,  by  Arthur  Raffalovich. 
^Principles  of  Economics. 

424 


CORRUPTION 

is  equally  necessary.  We  owe  little  thanks  to  any  state 
that  the  world  has  been  transformed  through  the  rail- 
ways, steam  navigation,  the  industrial  use  of  steam, 
etc.  This  transformation  has  been  brought  about  by 
individuals.  "Electric  traction  was  easily  started  in 
England  as  a  public  business,  after  private  enterprise 
in  the  United  States  had  shown  how  the  thing  could 
be  done." 

The  transmission  and  distribution  of  hydraulic  and 
electric  power  call  for  an  amount  of  enterprise  and 
vigor  which  public  officials  are  not  at  all  likely  to 
supply.  However,  Mr.  Taussig  would  suggest  that 
such  resources  should  never  be  given  in  perpetuity  by 
the  public.     There  should  be  no  unlimited  franchises. 

Mr.  Taussig  speaks  as  follows  of  the  qualities  de- 
manded of  administrators  of  undertakings  in  a  democ- 
racy, and  he  is  full  of  misgivings  as  to  the  corrupting 
power  of  such  undertakings  : 

"It  is  often  said  that  corruption  in  our  municipal  and 
state  afifairs  is  caused  by  private  ownership  of  the  great 
monopoly  enterprises,  and  that  public  ownership  is  the 
cure.  To  reason  so  is  to  mistake  the  occasion  for  the 
cause.  The  occasion  is  the  great  fund  of  gain  which 
the  monopoly  enterprises  can  yield  ;  the  cause  is  political 
demoralization.  It  matters  little  whether  the  initiative 
in  corrupt  ways  is  taken  by  the  heads  of  the  monopoly 
corporations  or  by  the  public  officials — whether  the  first 
step  be  bribery  or  blackmail.  In  either  case  it  is  the 
existence  of  venal  legislators  and  administrators  that 
brings  coarse  and  characterless  persons  into  the  manage- 
ment of  the  'public  service'  industries.  Honorable  men 
withdraw  from  the  unsavory  afifairs  and  are  replaced  by 
those  less  squeamish.     The  root  of  the  difficulty  is  that 

425 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

a  bad  political  situation  invites  corruption,  not  that  cor- 
ruption makes  the  political  situation  bad." 

The  true  way  to  abolish  corruption  is  to  suppress 
the  opportunity  for  corruption.  But  the  more  govern- 
ment and  municipal  undertakings  increase  in  number 
and  in  importance,  the  more  these  opportunities  will 
multiply. 

Government  undertakings  are  a  terrible  source  of 
temptation  to  the  ring-leaders  among  their  employees. 
They  know  that  fear  has  a  value,  and  they  become 
exploiters  of  the  fears  of  their  superiors,  the  deputies 
and  the  ministers.  And,  although  all  their  plans  may 
not  succeed,  it  is  more  than  enough  that  any  of  these 
demagogues  have  obtained  avowed  advantages.  Others 
have  obtained  secret  advantages. 

The  employees  of  the  navy  yards  and  of  the  city 
halls  gaze  with  admiration  at  a  man  like  M.  Goude, 
and  more  than  one  young  clerk  of  the  navy  department 
is  saying  to  himself  : 

"That  is  the  way  to  succeed.    Let  us  imitate  him." 


426 


CHAPTER   VI 

NATIONALIZATION      OF     PUBLIC     UTILITIES      AND 
THE   FOUNDATION    OF   GREAT   FORTUNES 

New    Zealand. — Australia. — Great    Fortunes 

In  a  lecture,  delivered  on  December  15,  19 10,  be- 
fore the  Fabian  Society,  G.  Bernard  Shaw  gives  the 
following  definition  of  Socialism: 

"A  state  of  society  in  which  the  income  of  the  country 
shall  be  divided  equally  among  the  inhabitants  without 
regard  to  their  character,  their  industry  or  any  other 
consideration  except  the  fact  that  they  are  human  be- 
ings." 

The  partisans  of  public  ownership  hold  that  the  real- 
ization of  such  a  conception  would  be  a  step  toward 
the  millennium. 

They  cheerfully  declare  that  New  Zealand  contains 
neither  paupers  nor  millionaires.  Now,  among  the 
New  Zealanders  who  have  recently  died,  Jacob  Joseph 
left  a  fortune  of  £300,000  ($1,461,000)  ;  that  of  Arch- 
deacon Williams  amounted  to  £420,000  ($2,045,400)  ; 
that  of  the  Hon.  W.  W.  Johnston  to  about  £500,000 
($2,435,000).  According  to  an  estimate,  based  on  a 
comparison  of  inheritances.  Le  Rossignol  and  Stewart 
calculate  that  one-half  of  one  per  cent,  of  all  the  fam- 

427 


WHERE  AND   WHY    PUBLIC   OVVNEKSllIP    HAS    FAILED 

ilies,  each  family  being  reckoned  as  having  five  mem- 
bers, possesses  ^^  per  cent,  of  the  total  wealth  of  New 
Zealand.  And,  despite  the  growing  tax  upon  land, 
and  the  division  of  great  estates,  this  inequality  is 
increasing.^ 

In  Australia  the  wealth  is  very  unequally  distributed. 
In  New  South  Wales  i,ooo  individuals,  representing 
0.40  per  cent,  of  the  population,  possess  £130,000,000 
($633,000,000),  or,  in  other  words,  an  average  to  each 
individual  of  £130,000  ($633,000),  while  the  sum  of 
their  total  fortunes  amounts  to  35  per  cent,  of  the 
whole  private  wealth  of  the  state.  In  1904- 1905  the 
half  of  all  the  private  property  of  the  state  belonged 
to  3,000  people  at  most.^ 

Able  men  make  great  fortunes  in  these  countries  as 
other  able  men  have  made  them  in  Turkey  and  in 
Russia. 

^  State  Socialism  in  Nezv  Zealand,  page  299. 
^  The  OMcial  Year  Book  of  New  South  Wales,  1904- 1905,  page 
543- 


428 


CHAPTER   VII 

DISINTEGRATING    CHARACTER    OF    PUBLIC 
OPERATION 

Individuals  Are  Industrious  and  Economical  ;  Adminis- 
trative and  Political  Groups  Are  Wasteful  and  Ex- 
travagant.— Public  Ownership  Means  a  Topsy-Turvy 
World. — Changing  Human  Nature. 

Contradictions  Inherent  in  Public  Operation. — Tax-Pay- 
ers and  Consumers. — Customs  Duties  in  Switzerland. — 
Payment  in  Kind  and  the  Raising  of  Salaries. — De- 
pressing Effect  of  Public  Operation. — Public  Operation 
One  Factor  in  the  Problem  of  Unemployment. 

Claude  Mullins  and  Municipal  Operation. — The  Electors 
of  To-day  Are  the  Candidates  of  To-morrow. — Public 
Administrators  the  Slaves  of  the  Employees  Whom 
They  Ought  to  Control. — Emphasis  Not  on  Service, 
but  on  Political  Effect. 

Monarchical  Conceptions  of  the  Socialists. — Transforma- 
tion of  a  Republican  State  into  a  Beneficent  King. — 
Delusion  of  M.  Fournière. — The  Necessity  of  the  Sub- 
ordination of  the  Individual  According  to  Philip  Snow- 
don. 

The  Budget  a  Socialist  Curb. — But  the  Socialists  Con- 
sider Taxation  an  Instrument  of  Confiscation. — Sidney 
Webb  on  the  Housing  of  Workmen  and  Ownership  of 
the  Soil. 

Crisis  of  Parliamentarianism. — Necessity  of  Concentrat- 
ing the  Action  of  the  State  upon  Fundamentals. — Se- 
curity at  Home  and  Abroad. — The  Interference  of 
Government  in  the  Economic  Activity  of  the  Nation 
Means    Disintegration   of   the    State. 

429 


WHERE   AND    WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

7.  Resistance. — Declarations  of  the  Swiss  Federal  Council. 

— M.   Brouilhet  and  Public  Opinion  in  France, 

8.  Conclusions. 

I.  Individuals  are  industrious,  productive  and  eco- 
nomical; administrative  and  political  groups,  both  na- 
tional and  municipal,  are  wasteful  and  run  the  tax- 
payers into  debt. 

The  ingenious  casuist  turns  this  statement  about  and 
says  :  "In  the  future,  municipalities  and  states  will 
produce  and  economize  while  individuals  who  have 
worked  will  rest.  He  who  has  produced  shall  con- 
sume; he  who  has  economized  will  no  longer  need  to 
take  that  trouble."  A  truly  topsy-turvy  world  that 
would   be  ! 

However,  to  the  objections  to  which  such  a  con- 
ception gives  rise  the  reply  is  invariably  :  "A  Socialist 
society  will  change  human  nature." 

If  past  experiments  are  mentioned,  your  Socialist 
replies  :  "Those  experiments  have  been  tried  in  a  capi- 
talist society  and  consequently  do  not  count." 

In  general  those  who  are  advocating  most  vehe- 
mently the  nationalization  and  municipalization  of  all 
public  utilities  treat  the  officials  who  direct  and  govern 
them,  whoever  they  may  be,  with  the  utmost  scorn. 
If  the  Socialist  could  only  put  himself  and  his  fellows 
in  the  high  places  of  the  government  there  would  be 
nothing  left  to  wish  for. 

2.  Yet  certain  difficulties  are  insurmountable,  even  to 
a  Socialist.  When  a  political  group  exploits  a  utility, 
if  there  is  any  profit  arising  from  the  enterprise,  it  is 
made  at  the  expense  of  the  consumer;  or,  if  there  is 


CHARACTER   OF    PUBLIC    OPERATION 

any  advantage  in  it  for  the  consumer,  the  taxpayers 
pay  the  piper. 

In  either  case  the  minority  is  favored  at  the  expense 
of  the  majority.  In  fact,  every  government  operation 
ends  in  contradictions,  similar  to  the  one  pointed  out 
by  M.  Favarger  ^  apropos  of  the  Swiss  railways: 

"Through  its  customs  duties  the  Federal  Council  raises 
the  cost  of  living;  then,  in  order  to  make  it  possible  for 
government  officials  to  support  the  heavier  burden,  it 
raises  their  salaries." 

I  have  pointed  out  the  depressing  efifect  produced  on 
industry  at  large  by  any  threat  of  government  or  mu- 
nicipal operation.  Private  effort  finds  the  struggle  dif- 
ficult, if  not  impossible,  against  competitors  who  may 
not  only  bring  politics  to  bear,  but  who  may  even  make 
use  of  the  courts  upon  occasion.  For  no  one  is  natur- 
ally predisposed  to  invest  capital  in  an  undertaking 
from  which  he  may  be  driven  out  at  any  moment  by 
government  or  municipal  competition. 

Consequently  every  threat  of  socialization  or  munici- 
palization is  followed  by  loss  of  energy  in  establishing 
or  carrying  on  business,  as  well  as  by  tightness  in  the 
money  market.  Then  these,  in  their  turn,  become  im- 
portant factors  in  the  problem  of  unemployment. 

3.  Claude  W.  Mullins,  in  his  article  upon  "The  Mu- 
nicipal Activity  of  London,"  ^  sheds  great  light  on 
the  disturbing  character  of  municipal  trading  opera- 
tions. 

*  Journal  des  Économistes,  December,  1910. 
'Revue  Économique  Ititernationale,  see  above. 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

"All  questions  become  electoral  questions,  and  this  very 
real  danger  assumes  a  more  threatening  aspect  when 
we  consider  the  large  number  of  employees  connected 
with  undertakings  like  the  tramway  service  or  water 
works.  Municipal  councillors  are  employers  and  candi- 
dates in  one  and  the  same  person,  a  state  of  affairs  carry- 
ing with  it  a  serious  menace  to  the  future  stability  of  any 
state. 

"A  president  or  member  of  a  municipal  committee  is 
interested  in  the  success  of  an  enterprise  both  as  a  simple 
citizen  and  as  a  representative  of  his  constituents.'' 

Officials  are  not  judged  according  to  services  ren- 
dered, but  according  to  the  effect  produced  by  a  "dilet- 
tante administration."  The  elector  of  one  day  may 
well  be  the  candidate  of  the  next;  and,  if  his  election 
depends  upon  employees  in  the  government  or  munici- 
pal service,  he  will  be  at  their  beck  and  call,  nor  will 
he  hesitate  before  any  sacrifice  of  principle. 

4.  The  Socialists  look  upon  themselves  as  republi- 
cans in  France,  as  in  New  Zealand.  In  reality  they  are 
monarchists,  who,  being  at  the  family  stage  of  civiliza- 
tion,^ consider  themselves  as  helpless  dependents,  and 
therefore  long  to  transform  a  republican  state  into  a 
beneficent  ruler,  whose  business  it  is  to  make  them 
happy,  furnish  them  with  bread,  and  otherwise  pro- 
vide them  with  all  the  things  of  which  they  stand  in 
need — their  needs  being  only  limited  by  their  desires. 

Social  theorists,  like  Eugene  Fournière  ^  have  held, 

^  See  Yves  Guyot,  Les  Principes  de  '8ç  et  le  Socialisme.    La 
Démocratie  Individualiste. 
*Ibid. 


CHARACTER   OF    PUBLIC    OPERATION 

despite  all  the  evidence  to  the  contrary,  that  they  are 
defending  the  rights  of  the  individual.^ 

Philip  Snowden,  M.  P.,  representing  the  Labor 
Party  in  Great  Britain,  is  at  any  rate  logical  when  he 
says  : ^ 

"The  object  of  Socialism  is  not  to  render  the  indi- 
vidual capable  of  living  on  his  personal  resources.  That 
is  the  theory  of  radical  individualism.  Its  object  is  to 
create  in  him  a  greater  and  greater  sense  of  his  depend- 
ence upon  the  state,  and,  at  the  same  time,  to  inculcate  in 
him  the  conviction  that  he  is  a  part  of  it  and  that  he  has 
a  duty  and  responsibility  toward  the  state  ;  and  that 
only  in  so  far  as  he  fulfills  this  duty  can  he  benefit  by 
the  advantages  of  a  complete  personal  and  social  life." 

5.  The  budget  puts  a  curb  on  Socialism,  at  least  in 
so  far  that  it  makes  taxes  necessary  ;  those  who  would 
otherwise  rush  into  reckless  expenses  feel  the  burden 
of  these  same  taxes  sufficiently  themselves  to  bring 
home  a  vague  realization  of  the  following  truth  :  Noth- 
ing is  free;  everything  must  be  pond  for.  If  the  whole 
burden  could  only  fall  on  others  they  would  rejoice 
in  running  into  debt.  Far  from  preaching  economy 
in  the  way  of  expenses,  Socialists  encourage  prodigal- 
ity, and  they  consider  that  fiscal  confiscation  is  an  in- 
strument of  social  revolution. 

Sidney  Webb  says  :  "The  housing  of  the  poor  will 
absorb,  through  taxation,  a  continually  increasing 
share  of  the  income  of  the  nation;  and  this  increase  of 

*  L'Individu  l'Association  et  L'État,  Paris,  F.   Alcan. 

*  Upon  the  Insurance  Bill,  Labour  Leader,  July  14,  1911. 

433 


WHERE   AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

local  taxes  is  an  unheeded  sign  of  the  gradual  nation- 
alization of  the  soil."  ^ 

We  shall  be  almost  at  the  "great  day"  of  "the  social 
cataclysm,"  when,  after  refusing  to  pay  the  debts  due 
the  government  and  municipal  creditors,  the  Socialists 
are  able  to  exclaim:  "At  last  we  have  gone  bank- 
rupt." 

6.  We  hear  frequent  remarks  concerning  the  crisis 
of  parliamentarianism,  of  the  inefficiency  and  lack  of 
power  of  our  representatives.  As  a  matter  of  fact, 
our  representatives  are  guilty  of  wishing  to  do  that 
which  they  know  perfectly  well  no  one  of  them  can  do, 
whatever  be  his  efficiency  or  his  capacity  for  work. 

Now,  parliamentary  government  is  possible  only  on 
condition  that  it  be  divorced  from  all  secondary  ques- 
tions, and  all  questions  v^hich  do  not  concern  domestic 
or  foreign  security  are  subsidiary  and  more  or  less 
negligible,  in  so  far,  at  least,  as  direct  government  in- 
terest is  concerned.  Parliamentary  government  will 
be  strong  in  proportion  as  its  activities  are  confined 
to  the  fundamental  duties  of  a  state. 

Statesmen  who  pursue  an  opposite  policy  are  paving 
the  way  for  anarchy.  They  are  surrendering  the  insti- 
tutions and  the  general  policy  of  the  country  to  the 
will  of  those  who  see  only  their  own  interest.  They 
become  the  proteges  of  the  employees  whom  they  ought 
to  control.  They  defer  all  questions  to  the  convenience 
of  the  ringleaders  of  associations  of  their  employees. 

In  the  measure  that  they  are  willing  to  burden  them- 
selves with  functions  properly  belonging  to  individ- 

*  Socialism  in  England,  page  109. 

434 


CHARACTER   OF    PUBLIC   OPERATION 

uals  they  are  sacrificing  the  general  interest  and  en- 
dangering the  security  of  the  state,  and  chiefly  for  the 
sake  of  employees  who  consider  themselves  as  the  real 
proprietors  of  services  which  they  are  paid  to  perform. 
The  interference  of  the  state  in  the  economic  activity 
of  the  nation  means  the  ultimate  disintegration  of  the 
state. 

7.  The  message  of  the  Swiss  Federal  Council  *  to 
the  Chambers,  proposing  the  creation  of  an  administra- 
tive tribunal,  contains  the  following  passage  : 

"In  the  degree  that  a  modern  state  extends  the  circle 
of  its  functions  and  that  its  component  parts  penetrate 
within  the  domain  reserved  down  to  the  present  to  pri- 
vate enterprise,  the  number  of  its  employees  increases  to 
vast  proportions  and  the  citizen,  threatened  in  his  indi- 
vidual rights  by  an  official  autocracy,  scents  the  danger 
of  encroachment  on  the  part  of  the  all-powerful  state 
and  feels  an  instinctive  need  of  efficient  protection 
against  this  inimical  force." 

M.  Brouilhet,  French  socialist  reformer  and  partisan 
of  government  intervention,  says  : 

"We  can  remember  when  public  opinion  was  most  leni- 
ent to  the  government  ;  but  since  the  government,  de- 
siring to  conciliate  the  people,  has  become  an  active 
participant  in  trading  enterprises,  a  reaction  has  set  in, 
and  truly  public  opinion  is  now  lacking  in  indulgence." 

As  for  France,  M.  Brouilhet  concludes  : 

"Before  the  government  absorbs  another  tenth  of  the 
general  activity  of  the  country  a  long  time  will  certainly 
elapse." 

*  Gazette  de  Lausanne,  February  i,  1912. 

435 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

In  a  remarkable  article,  appearing  in  the  Gazette  de 
Lausanne,  Edouard  Secretan,  member  of  the  National 
Council,  declares  : 

"About  30  years  ago  the  Federal  power  was  first  and 
foremost  political.  Its  principal  business  was  the  na- 
tional defense,  and  the  relations  between  Switzerland 
and  foreign  countries. 

"In  domestic  affairs  its  action  in  regard  to  the  cantons 
was  advisory  and  disinterested  in  character,  its  interven- 
tion as  limited  as  possible.  It  governed  from  above  and 
devoted  itself  mainly  to  establishing  national  unity. 
Under  this  régime  we  became  a  nation  under  a  Federal 
government  chiefly  interested  in  seeing  the  right  prevail. 

"But  things  have  changed.  The  Federal  government 
has  chosen  to  become  banker,  common  carrier,  insur- 
ance broker,  and  it  is  only  a  question  of  time  before  it 
will  become  a  merchant.  It  is  only  half  a  banker,  but 
it  has  become  a  real  common  carrier  and  this  operation 
has  made  it  a  debtor  for  1,500,000  francs,  owed  almost 
exclusively  to  foreign  creditors. 

"To  the  enormous  enterprise  of  transportation  has 
now  been  added  insurance.  Here,  again,  we  must  count 
by  millions. 

"To-day  our  whole  political  life  is  dominated  by  finan- 
cial preoccupations,  and  technical  experts  have  taken  the 
place  of  statesmen. 

"They  impose  themselves  on  the  Federal  Council  on 
the  basis  of  responsibilities  they  have  themselves  in- 
curred, and  the  Federal  Council  transmits  to  the  Cham- 
ber the  will  of  this  or  that  general  manager  of  some  pub- 
lic undertaking.  In  fact  managerial  authority  has  a 
tendency  to  become  dictatorial  authority. 

"The  German  part  of  Switzerland,  Bern,  Zurich, 
Aaron,  etc.,  is  the  storm  center  of  all  this  propaganda. 

436 


CHARACTER   OF    PUBLIC    OPERATION 

Romance  Switzerland  still  resists.  It  has  twice  rejected 
the  state  bank,  twice  the  insurance  monopoly,  and  once, 
at  least,  the  purchase  of  railroads." 

8.  The  experiences  arising  from  state  and  municipal 
trading  operations  lead  inevitably  to  the  following  con- 
clusions : 

1.  Public  monopolies  kill  the  spirit  of  initiative  by 
destroying  competition.  The  ultimate  result  is  fatal 
industrial  lethargy. 

2.  Public  operation  emphasizes  the  special  demands 
of  the  community,  rather  than  fundamental  necessities, 
and  provides  opportunities  for  nepotism,  graft,  and 
corruption. 

3.  Operation  by  states  and  local  governments  is 
more  difficult  than  private  management.  This  is  a 
rule  which  holds  good,  despite  a  few  apparent  excep- 
tions. 

4.  Government  employees,  paid  for  their  loyalty  to 
the  public  interest,  come  to  consider  their  positions 
as  their  own  private  property,  and,  the  more  numerous 
they  are,  the  more  they  incline  toward  exchanging  their 
rôle  of  subordinates  for  that  of  masters  ;  from  being 
directed  they  become  the  directors. 

5.  Intervention  of  the  public  power  has  an  adverse 
influence  upon  the  distribution  of  wealth  ;  sometimes 
it  is  the  whole  body  of  taxpayers  who  must  suffer  for 
the  sake  of  some  privileged  class,  sometimes  the  con- 
sumer is  defrauded  to  benefit  the  taxpayer. 

6.  In  every  public  enterprise  the  risks  of  loss  are 
borne  by  the  taxpayers,  and,  in  order  to  realize  their 
immediate  ideals,  and,  while  waiting  for  the  hoped-for 

437 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS   FAILED 

increase  of  personal  influence,  statesmen  or  municipal 
officials  tie  up  the  finances  for  a  more  or  less  long 
period,  meanwhile  burdening  the  taxpayers  of  the  fu- 
ture with  expenses  for  which  they  will  have  to  provide 
without  having  consented  to  them. 

7.  All  such  trading  operations  oppose  political  to 
economic  competition. 

The  propaganda  of  public  ownership  has  established 
more  firmly  than  before  the  truth  of  the  following  in- 
dustrial laws  : 

First:  Neither  states  nor  municipalities  should  at- 
tempt tasks  especially  adapted  to  individual  effort. 

Second:  In  the  case  of  those  utilities  in  which  the 
public  interest  is  general,  as  railways,  water,  gas,  elec- 
tricity, tramways,  etc.,  there  must  he  a  physically  and 
morally  responsible  body,  accountable  to  the  public  on 
the  one  hand  and  the  service  on  the  other,  and  pro- 
tected by  contracts  against  vacillations  of  public  opin- 
ion and  the  extortionate  demands  of  interested  groups, 
whether  employees,  consumers,  or  politicians. 

Third:  For  individuals  the  watchword  shoidd  be  ac- 
tion; for  local  and  state  governments,  control. 


438 


APPENDIX  "A" 

ALCOHOLISM  IN  RUSSIA 

The  best  minds  in  Russia  stand  aghast  at  the  rav- 
ages wrought  in  Russian  societ)^  by  the  abuse  of  vodka, 
the  national  spirituous  drink  of  the  lower  orders.  The 
Government  at  St.  Petersburg  has  maintained  a  mon- 
opoly in  the  manufacture  and  sale  of  this  commodity, 
and  has  promoted  with  great  energy  its  production 
and  use.  The  Army  and  Navy  that  fought  with  Ja- 
pan were  supported  by  the  revenue  that  came  from 
this  monopoly,  and  Russia,  we  are  told,  has  replenished 
the  privy  purse  of  its  sovereign  from  the  sale  of  a 
drink  that  is  actually  tending  to  the  demoralization  of 
the  common  people.  As  far  as  we  can  learn  from  the 
opinion  of  the  Russian  press,  ever  since  the  Russian 
Government  declared  vodka  a  state  monopoly,  and  as- 
sumed the  rôle  of  the  saloon  keeper,  the  liquor  business 
there  has  been  making  rapid  progress,  and  has  become 
one  of  the  main  sources  of  income  of  that  country. 
Last  year  the  Government  of  the  Czar  realized  from 
the  sale  of  liquor  $412,000,000,  and  for  the  first  six 
months  of  this  year  the  proceeds  exceded  those  for  the 
corresponding  period  of  last  year  by  nearly  $23,500,- 
000.  which  figures,  perhaps,  tend  to  show  that  the  Rus- 
sian bureaucracy  has  been  successful  in  one  branch  of 

439 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

endeavour,  at  any  rate.  It  may  be  recalled  here  that 
Mr.  Maklakov,  the  Minister  of  the  Interior,  said  in  an 
interview  with  a  French  journalist  some  time  ago  that 
the  "severe  climate  of  Russia  makes  alcohol  a  vital 
necessity  to  the  masses."  But  some  Russians  do  not 
agree  with  that  statesman's  view,  and  have  very  dif- 
ferent ideas  about  the  results  of  the  Government's  ac- 
tivity in  that  direction.  "Public  drunkenness  has  been 
growing  to  extraordinary  proportions,"  says  the 
Ryetch  (St.  Petersburg),  and  the  increase  in  drinking 
"has  assumed  a  really  threatening  character."  The 
radical  press,  and  even  some  conservative  organs,  have 
been  conducting  a  vigorous  campaign  against  the 
liquor  monopoly.  Mr.  M.  Menshikov,  of  the  Novoye 
Vremya  (St.  Petersburg),  condemns  it  in  the  follow- 
ing words  : 

"A  state  monopoly  of  the  source  of  drunkenness  ex- 
ists only  here,  in  Russia,  and  all  the  rest  of  the  world 
— it  seems,  without  exception — does  not  allow  the 
complicity  of  the  Government  in  this  public  vice.  In 
the  whole  world,  even  in  the  barbaric  and  pagan,  the 
rôle  of  the  Government  is  presumed  to  be  a  struggle 
against  vices,  but  not  participation  in  the  way  of  their 
exploitation.     .     .  Our  official  publicists  (oh,  how 

hard  their  task  is!)  maintain  that  the  Government  sells 
alcohol  exclusively  with  a  view  to  limiting  the  evil  : 
that  if  it  should  allow  perfect  freedom  in  the  manufac- 
ture and  sale  of  this  poison,  drunkenness  would  reach 
'quite  incredible  limits.'  However,  the  experience  of 
all  nations — both  Christian  and  pagan — which  grant 
freedom  in  this  respect  shows  different  results.  Pub- 
lic intemperance  in  those  countries  persists,  but  it  is  far 

440 


less  and  not  so  appalling  as  here.     Why?     For  one 
simple  reason.     Repudiating  the  monopoly  of  liquor, 
the  governments  in  the  West  deprive  this  vice  of  the 
most  powerful  capital  in  the  world,  that  of  the  state. 
They  deprive  it  of  the  most  powerful  mechanism  of 
distribution,    the    governmental    system.      They    take 
from  it  the  highest  authority,  that  of  state  approval. 
That  alone  constitutes  a  hard  blow  to  vice. 
Some  may  say  :    Permitting  the  manufacture,  sale,  and 
consumption  of  alcohol,  the  governments  in  the  West 
grant  freedom  to  this  evil.    Not  at  all.    Only  an  oppor- 
tunity for  evil  is  afforded,  but  simultaneously  measures 
are  taken  to  limit  the  opportunity.     Not  getting  into 
an   irreconcilable   contradiction   with    itself,    like   our 
Government,  the  western  authorities  can  fight  drunken- 
ness like  any  other  vice.     But  here  the  temperance 
movement,  as  is  known,  frequently  meets  with  opposi- 
tion on  the  part  of  the  Government.     The  resolutions 
of  numerous  village  assemblies  regarding  the  closing 
up  of  saloons  and  Government  liquor  stores  have  not 
been  affirmed,  petitions  have  not  been  granted,  preach- 
ers of  temperance  have  frequently  been  dealt  with  as 
common  rioters,  and  subjected  to  punishment. 
Despite  the  categorical  'wish'  of  the  Imperial  Duma 
that  liquor  should  not  be  sold  in  the  colonization  lands 
of  Siberia  belonging  to  the  Government  and  the  Minis- 
try  of   Domains,    liquor    is   being    freely   sold   there. 
.     For  many  years  the  press  and  society  have 
pointed  to  the  unseemliness  of  selling  liquor  on  great 
Christian   holidays   or   in   the  early  hours   when  the 
working  people  go  to  their  factories  and  mills,  or  of 
selling  it  in  such  small  quantities  that  the  last  cent 

441 


WHERE  AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

might  be  taken  from  the  beggar.  The  indeccHcy  and 
the  great  harm  of  it  are  well  understood,  but  what  can 
you  do  if  the  nature  of  trade  in  general  and  that  in 
liquor  in  particular  demands  that  the  trade  should 
adapt  itself  to  the  chief  consumer — the  drinking 
masses?  Having  become  the  owner  of  and  dealer  in 
such  a  poisonous  product,  the  Government  has  placed 
itself  in  a  false  position  from  which  there  is  no  way 
out.  To  limit  the  traffic  means  to  limit  the  income 
.  .  .  ;  not  to  limit  it  means  really  to  make  drunkards 
of  the  people." 

In  conclusion,  Mr.  Menshikov  takes  this  more  hope- 
ful view,  however  : 

*'No  matter  how  much  bureaucratic  eloquence  the 
'liquor  publicists'  should  expend,  the  fate  of  the  liquor 
monopoly  in  Russia  is  already  decided.  If  not  the 
days,  the  years,  of  this  unhappy  child  of  Count  Witte 
and  Kokovtzov  are  numbered.  I  say  this  with  abso- 
lute certainty,  because  I  cannot  conceive  that  the  cloud- 
ing of  the  Government's  consciousness  in  this  question 
can  last  much  longer.  Seeing  the  terrible  results  of 
public  intemperance,  it  is  quite  improbable  that  the 
Duma  and  the  Imperial  Council  will  not  attempt  to 
check  the  danger,  that  the  church  will  not  take  a  hand, 
enlightened  society,  and  lastly  the  Government  itself." 
— Translations  made  for  The  Literary  Digest. 


U2 


APPENDIX  "B" 

THE  FINANCIAL  YEAR  IN  AUSTRALIA 

Effects  of  Labour  Rule. 

(from  our  correspondent) 

Sydney,  Oct.  21. 

Three  and  a  half  months  have  elapsed  since  the 
close  of  the  past  financial  year,  and  it  is  only  now  that 
it  can  definitely  be  said  how  the  figures  for  the  year 
were  shaped.  Even  now  the  New  South  Wales  Budget 
for  the  current  year  has  not  been  forthcoming,  which 
is  a  serious  inconvenience,  because  New  South  Wales 
has  built  up  a  heavy  deficit,  and  the  position  needs 
righting.  But  it  would  be  a  blow  to  the  Labour  Party 
now  in  ofiice  to  impose  fresh  taxation  prior  to  the 
State  elections  just  ahead,  and  so  the  question  has  been 
shelved.  The  Commonwealth  Budget  was  delivered 
early  in  October,  and  five  states  have  put  forward  their 
estimates — two  within  the  past  week. 

State  revenues  expanded  at  a  slower  rate  last  year, 
as  can  be  gathered  from  the  following  statement,  while 
expenditures  increased  without  check  in  two  of  the 
states  : 

443 


WHERE  AND   WHY    PUBLIC    OWNERSHIP    HAS    FAILED 

SIX    STATE   REVENUES    COMBINED 

Expendi- 
Revenues.  turcs.  Excess  of 

1910-11..         ..   £37,365,653^^37,499,315    Expenditure,  £133,662 

1911-12..         ..      41,278,034     41,148,646   Revenue,  129,388 

1912-13..                 43,056,398     44240,805   Expenditure,  1,184,407 
Estimates  (say) 

1913-14.  .         ..      46,050,000     46,600,000  Expenditure,  550,000 

The  estimates  for  191 3- 14  are  composed  of  five 
Budget  statements,  and,  in  the  case  of  New  South 
Wales,  allow  for  an  increase  of  £400,000  in  taxation, 
which  the  Premier  foreshadowed,  and  an  average 
growth  in  other  revenues.  Now,  it  will  be  noticed  that 
in  1911-12  the  combined  revenues  increased  £3,913,- 
000,  but  in  19 1 2-1 3  the  increase  was  only  £1,778,000, 
or  not  one-half  that  of  the  previous  year.  But  the  ex- 
penditures, which  increased  £3,649,000  in  1911-12, 
further  increased  £3,092,000  in  191 2- 13 — hence  the 
combined  deficiency. 

With  regard  to  the  estimates  for  19 13- 14,  it  will  be 
seen  that  an  increase  of  close  upon  £3.000,000  is  al- 
lowed for,  including  further  taxation  in  New  South 
Wales  and  West  Australia.  Whether  it  will  be  realized 
is  the  unsolved  problem.  Revenues  have  lost  much  of 
their  elasticity  just  now. 

GROWTH    OF    LABOUR    EXPENDITURE 

But  these  combined  results  tar  all  the  States  with 
the  same  brush,  and  that  is  altogether  unfair.  Four 
of  the  states  are  not  under  labour  administration,  while 
two  (New  South  Wales  and  West  Australia)  are  so. 
Separating  the  returns  for  last  year  into  the  two 
groups,  we  have  the  following  : 

444 


APPENDIX       B 

Expendi- 
Revenue  ture. 

Two  Labour  Govern- 
ments ..    £20,857,115   £22,275,898    Deficit,  £1,418,783 

Four  other  Govern- 
ments        . .         .  .      22,199,283      21,964,907    Surplus,       234,376 
A3)056,398   £44,240,805     Deficit,  £1,184,407 

The  two  labour-governed  states  secured  £1,114,000 
of  the  year's  revenue  expansion,  while  the  remaining 
four  gained  only  £664.000  ;  but  the  latter  group  all  lived 
within  their  incomes,  while  the  two  labour  administra- 
tions lived  much  beyond  them.  Similar  results  were 
shown  in  the  preceding  year,  only  of  a  less  pronounced 
character,  and  they  are  again  apparent  in  the  new 
financial  year's  estimates,  and  both  these  labour  admin- 
istrations have  already  imposed  more  taxation,  and 
their  programs  include  yet  additional  taxation  in 
1913-14. 

Labour  has  been  three  years  in  office  in  New  South 
Wales,  and  two  years  in  West  Australia.  But  a  three 
years'  comparison  of  the  two  groups  is  altogether  re- 
markable : 

AUSTRALIAN    STATE   EXPENDITURES. 

Two    Labour  Four     Other 

Governments.  Governments. 

1909-10  £16685,882  £18,887,372 

1912-13  .  .  .  .  .  .  22,275,898  21,964907 

Three  years'  increase  . .        £5,590,016  £3.o77)535 

or  33.5  per  cent,     or  16.3  per  cent. 

The  whole  reason  for  the  marked  retrogression  un- 
der labour  finance  has  been  in  the  striking  growth  of 
their  expenditure,  which  relatively  in  the  past  three 
years  has  been  twice  as  rapid  under  labour  administra- 
tion as  under  what  Australians  term  Liberal  adminis- 

445 


WHERE  AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

tration.  It  is  (juite  to  be  understood.  Labour  came  into 
office  on  the  votes  of  a  class,  and  that  class  is  master. 
It  cannot  be  denied  what  it  asks  for,  and  in  fact  the 
legislative  programs  have  to  be  submitted  to  the  caucus 
at  the  Trades  Halls  and  approved  before  they  can  be 
put  forward. 

When  these  administrations  came  into  office — and 
the  caucus  into  power — it  was  boasted  that  the  burden 
of  their  schemes  should  be  placed  upon  the  shoulders 
able  to  bear  it.  But  their  expenditures  have  run  away 
from  their  incomes  all  the  same,  and  the  burden  has 
been  spread,  as  the  increased  cost  of  living  specially 
affects  labour. 

What  is  more,  in  the  efforts  to  find  money  for  state 
employees,  which  have  multiplied  greatly,  loans  have 
been  called  upon  to  supplement  revenue  freely.  The 
railways  and  other  public  works  are  needed,  but  the  ef- 
fect of  the  increased  loan  expenditure  on  the  volume  of 
state  employment  has  been  marked  all  the  same.  How- 
ever, the  effect  upon  revenue  has  been  beyond  contro- 
versy. Happily,  all  six  of  the  state  governments  are 
not  under  labour  rule,  and  the  commonwealth  has  re- 
cently made  a  change.  The  state  election  in  New  South 
Wales,  just  ahead,  may  do  so  likewise.  But  in  the 
foregoing  statements  facts  only  have  been  dealt  with, 
and  facts  are  above  the  party  cries  current  in  Australia. 

With  respect  to  the  revenue  estimates  for  the  cur- 
rent year,  over  £2.000,000  of  the  expected  increases  go 
to  the  two  labour  administrations  and  £1,000,000  to  the 
remaining  four  states  ;  but,  then,  the  labor  govern- 
ments are  augmenting  taxation,  and  may  not  realize 
their  estimates.    However,  that  remains  to  be  proved. 

446 


THE  COMMONWEALTH  AND  THE  STATES 

Labour  has  also  been  three  years  in  office  in  the  Com- 
monwealth, and  the  expenditure  has  been  more  than 
doubled — growing  from  £7,499,517  in  1909-10  to 
£15,779,483  in  1912-13.  Much  of  the  increase  is  for 
value  received,  including  the  fleet  nucleus.  But  every 
department  has  grown  enormously,  like  the  post-office, 
which  cost  £3,231,198  in  1909-10  and  £4,783,744  in 
1912-13 — an  increase  of  48  per  cent.,  excluding  con- 
struction. The  expenditure  of  Australia  (common- 
wealth and  states),  excluding  all  duplications,  was  last 
year  £59,780,088,  and  the  combined  revenues  £58,492,- 
834,  the  net  deficiency  having  been  £1,287,254.  The 
commonwealth  accounts  showed  a  surplus  of  £391,550, 
but  that  was  because  £494,397  of  the  expenditure  was 
charged  to  the  accumulations  from  previous  years. 
That  was  legitimate,  but  the  actual  expenditure  of  the 
year  is  given  in  the  above  statement.  The  common- 
wealth expenditure  in  the  current  financial  year  is 
placed  at  £15,147,000,  but  that  is  after  deducting 
£2,653,223  charged  against  the  accumulations  of  previ- 
ous years,  wiping  them  out  completely. 

Australia  has  tried  the  effect  of  labour  rule,  and  has 
paid  the  bill,  apart  from  the  deficits.  This  serves  to 
show  what  the  cost  has  been,  and  that  cost  may  have 
some  effect  on  the  elections.  That  it  has  been  a  bur- 
densome luxury  is  clear,  while  whether  class  legislation 
is  the  best  of  legislation  is  a  matter  which  may  be  left 
to  consideration.  Class  legislation  never  gives  the  re- 
sults anticipated. — The  Times  (London),  November 
29,  1913. 

447 


APPENDIX    "C" 

THE    SHORTCOMINGS    OF    THE    TELEPHONE    IN 
ENGLAND 

To  anyone  who  has  had  practical  experience  of  the 

United  States  telephone  service,  resulting  from  private 
enterprise,  the  inferior  condition  of  the  English  service 
excites  no  wonder.  The  history  of  the  telephone  in 
the  United  Kingdom  during  the  past  30  years  has  been 
a  lamentable  tale  of  bureaucratic  blundering,  tolerated 
by  a  community  which  has  failed  to  perceive  the  poten- 
tial value  of  this  method  of  communication  and  to  in- 
sist upon  its  effective  organization  on  a  business  basis. 
As  the  result  of  a  short-sighted  Government  policy,  of 
official  mismanagement,  and  the  parochial  attitude  of 
local  authorities,  the  number  of  telephones  per  hundred 
of  the  population  in  Great  Britain  to-day  is  1.4,  as 
against  8.1  in  the  United  States.  London,  the  greatest 
city  in  the  world,  boasts  2.8  telephones  for  every  hun- 
dred of  its  inhabitants,  as  against  a  percentage  of  24.0 
in  Los  Angeles. 

One  of  the  chief  obstacles  barring  the  way  to  satis- 
factory development  of  the  telephone  as  a  public  utility 
has  been  the  traditional  conservatism  of  the  Post  Office 
and  the  fixed  idea  of  protecting  the  Government's  tele- 
graph  revenues  against  effective  competition  by  the 

448 


telephone.  In  1889  the  Postmaster-General  (after  de- 
clining to  purchase  the  telephone  patents)  brought  a 
suit  to  prevent  the  Edison  Company  from  establishing 
telephone  exchanges  in  London,  as  constituting  an  in- 
fringement of  his  telegraph  monopoly.  Successful  ad- 
ministration of  an  industrial  enterprise  like  the  tele- 
phone requires  vigilant  initiative  and  elasticity. 

PRIVATE    ENTERPRISE    IN    AMERICA 

In  America  the  possibilities  of  the  telephone  as  a 
time-saving  and  labor-saving  invention  were  better 
realized  from  the  outset.  Thanks  to  the  intelligence, 
foresight,  and  public  spirit  of  Mr.  Theodore  N.  Vail, 
founder  of  the  telephone  enterprise  in  the  United 
States  and  still  president  of  the  American  Telephone 
and  Telegraph  Company,  the  business  has  been  steadily 
built  up  with  high  ideals  of  organized  efficiency  and 
civic  duty.  Mr.  Vail's  ambition  was,  and  is,  "that 
every  person,  firm,  or  company  in  the  United  States 
that  ought  to  have  a  telephone  shall  be  provided  with 
one,  and  that  any  person  so  provided,  wherever  he  may 
be  located,  can  within  a  reasonable  time  be  connected 
to  the  telephone  of  any  other  subscriber  and  talk  satis- 
factorily." For  30  years  work  has  been  steadily  car- 
ried on  with  this  ideal  in  view,  and  with  marvellous 
results.  At  the  International  Telephone  and  Telegraph 
Conference  held  in  Paris  in  September,  1910,  the  chief 
engineer  of  the  company  summarized  some  of  these 
results  as  follows  : 

In  tlie  plans  which  we  have  made  for  New  York  and  for 
the  other  cities  in  America  it  has  been  found,  all  things  con- 

449 


WHERE   AND   WHY    PUBLIC   OWNERSHIP    HAS    FAILED 

sidered,  most  economical  when  building  new  subways  to  plan 
for  a  period  somewhere  between   15  and  20  years  ahead. 

Our  expenditure  for  new  construction  during  the  first  six 
months  of   1910  is  more  than  $21,000,000. 

The  fundamental  plans  for  New  York,  not  including  the 
vast  suburban  region  outside  of  the  municipal  limits  of  Greater 
New  York,  provided  in  1900  for  a  system  of  51,398  telephone 
stations,  served  from  52  central  offices,  with  an  estimated  popu- 
lation of  4,800,000.  In  1930  the  plans  provide  for  2,142,000  sta- 
tions, to  be  served  from  109  central  offices,  with  an  estimated 
population  of  8,800,000. 

At  the  present  time  an  enormous  amount  of  toll  line  business 
takes  place  between  New  York  City  and  the  territory  tributary 
to  it  for  30  miles  around.  In  90  per  cent,  of  this  business  the 
connexion  is  made  in  an  average  of  38  seconds.  In  all  of  these 
cases  the  transmission  conditions  are  so  planned  that  the  sub- 
scriber may  converse  with  ease.  A  local  call  is  accomplished 
in  less  time,  requiring  only  22  seconds  where  but  one  office  is 
involved,  and  slightly  more  between  two  offices. 

Between  cities  as  far  distant  from  each  other  as 
New  York,  Boston,  Washington,  and  Philadelphia, 
"Good  talking  with  prompt  connexions"  by  under- 
ground cables  is  the  regular  rule,  while  communication 
by  phantom  loaded  overhead  circuits  has  been  extended 
as  far  west  as  Denver,  distant  2,200  miles  from  New 
York. 

RESULTS    OF    EFFICIENT    SERVICE 

There  is  no  doubt  that  the  superiority  of  the  Amer- 
ican system  has  been  attained  in  a  great  measure  by 
administrative  ability  in  its  organizers  and  the  wide 
field  of  opportunity,  with  few  serious  obstacles  of  com- 
petition, in  which  they  have  worked.  Their  outlook 
has  been  steadily  national,  not  parochial.  They  have 
realized  that  defective  telephone  communication  is,  in 
every  sense,  bad  business,  and  that  the  factors  consti- 
tuting good  service,  in  the  order  of  their  importance, 
are  (  i  )  speed  and  accuracy  in  securing  connexions  ; 

450 


(2)  volume  and  clearness  of  sound  transmitted,  and 

(3)  cost.  They  have  realized  that  the  money  value  of 
the  time  and  temper  wasted  by  the  public  over  a  bad 
service  is  a  far  more  serious  consideration  than  any 
reasonable  charges  imposed  for  a  good  one,  and  they 
have  therefore  proceeded  on  the  principle  that  speed 
and  reliability  are  more  important  than  cheapness. 
Furthermore,  Mr.  Vail's  civic  ideals  have  been  applied, 
with  loyalty  and  enthusiasm,  throughout.  Esprit  de 
corps,  and  a  spirit  of  emulation  between  exchanges  are 
encouraged  to  the  utmost.  One  of  the  best  features  of 
the  telephone  business,  as  organized  in  America,  is  the 
public  appreciation  of  the  staff's  keenness,  its  "team 
work,"  and  pride  in  efficiency. 

Under  such  conditions  the  public  service  retains  its 
human  interest — no  small  factor  in  smooth  working — 
and  the  "telephone  habit"  becomes  easily  explicable. 
In  January,  191 1,  the  number  of  telephones  in  New 
York  was  equal  to  the  combined  totals  of  London, 
Paris,  and  Berlin. 

FAILURE    OF    GOVERNMENT    CONTROL 

In  Great  Britain  the  history  of  telephone  legislation 
has  persistently  reflected  the  vacillations  of  immature 
opinion,  strengthened  by  the  attitude  of  permanent  offi- 
cials of  the  Post  Office  and  the  Treasury.  The  situation 
to-day  is  the  result  of  years  of  laisser-faire,  improvi- 
dence, and  vacillation.  Its  economic  defects  and  inad- 
equate equipment  are  the  natural  consequences  resul- 
tant from  the  National  Telephone  Company's  inability, 
as  the  expiry  of  its  franchise  drew  near,  to  provide  for 
expansion    of    service    and    renewal   of    plant.      The 

451 


WHERE  AND   WHY   PUBLIC   OWNERSHIP    HAS    FAILED 

economical  construction  of  new  underground  cables 
alone  involves  plans  and  estimates  for  a  period  some- 
where between  15  and  20  years  ahead.  Further  causes 
of  disorganization  lie  in  the  relaxation  of  discipline 
and  esprit  de  corps  consequent  upon  the  transfer  of  the 
telephone  company's  personnel  to  the  Post  Office;  in 
the  jealousies  and  friction  between  old  employees  and 
new,  all  tending  to  impair  smooth  working  ;  above  all, 
in  the  technical  telephone  staff's  recognition  of  the  fact 
that  under  the  cast-iron,  water-tight  compartment  sys- 
tem of  Post  Office  tradition  there  is  little  or  no  scope 
for  intelligent  individual  initiative  and  scant  prospect 
of  applying  business  methods  to  the  development  of 
what  should  be  a  rapidly  expanding  commercial  under- 
taking, managed  by  the  best  technical  and  financial 
talent  obtainable. 

There  are  many  experts  qualified  to  speak  with 
authority  on  this  question  who  share  the  views  ex- 
pressed by  Lord  Desborough,  as  president  of  the  Lon- 
don Chamber  of  Commerce,  on  May  18,  191 1. 

Many  chambers  of  commerce  besides  the  London  Chamber, 
he  said,  had  discussed  the  subject,  and  they  were  unanimously 
of  opinion  that  it  would  be  very  much  better  for  the  telephone 
service  of  this  country  to  be  in  the  hands  of  a  board  of  experts 
than  to  hand  it  over  to  a  Government  Department.  .  .  . 
Business  men  would  like  to  see  an  independent  authority 
formed,  somewhat  on  the  lines  of  the  Port  of  London  Author- 
ity, or  in  any  case  formed  of  business  men  and  of  experts, 
W'ith  sufficient  Government  representation.  Such  men  would 
be  alive  to  the  needs  of  the  business  community  and  accessible 
to  representations  from  them,  and  would  bring  the  telephone 
service  of  this  country  up  to  the  requirements  of  the  nation. — 
The  Times  (London),  December  i,  1913. 


452 


INDEX 


Accounting,    Government,    43- 

45,  144. 
Denmark,  36;  Holland,  36; 
France,  37-41  ;  Austria,  42; 
Railroads  in  Belgium,  46- 
54;  Railroads  in  Germany, 
67-70;  New  South  Wales, 
192  ;   France,   199-204. 

"Active   Service,"  312. 

Alcohol  Monopoly,  vii. 

Switzerland,  12,  18,  207-212; 
Russia,  13,  212-215,  Appen- 
dix "A"  ;  Germany,  205- 
206  ;  Austria,  206-207  ; 
Italy,  207  ;  Belgium,  207  ; 
France,  385-386. 

Alglave,  Emile,  205,  211-212. 

Australia. 

Mines,  191  ;  Labor,  302  ; 
Great  Fortunes,  428;  La- 
bor Government,  Appen- 
dix "B." 

Austria. 

Government  Ownership,  21  ; 
Accounting,  42  ;  Cost  of 
Municipal  Ownership,  43  ; 
Railways,  72-74,  275-276, 
338,  374-375  ;  Municipal 
Housing,  167  ;  Alcohol, 
206-207  ;   Mines,  396-397. 

Avebury,   Lord. 
On  Municipal  and  National 
Trading,  67. 


Balfour,  Gerald,  138-139, 
Ballance,  John,  31. 
Banks,  State. 
Prussia,  22. 
Barthou,  Louis,  12,  14,  105. 


Bath,  England. 

Electricity.    132. 
Bavaria. 
Average    Railway    Receipts, 
74. 
Beaux  Arts,  7,  8. 
Begg,  Faithful,  259. 
Belgium. 

Shipping,  21  ;     Railways,   21, 
46-54,    119,  274;   Municipal 
Housing,  165-166;  Alcohol, 
207. 
Belloc,  Hilaire,  189,  401-402. 
Berlin. 

Milk  Rates,  61. 
Bertreaux-Rabier-Jourés,     402 

403. 
Birmingham,   150. 
Tramways,     10,     140;     Gas, 
128;     Electricity,     131-132; 
Housing,   155-156;   Munici- 
pal Finance,   188-189. 
Bismarck,  Otto,  Fiirst  von,  56- 

57,  205-206,  401. 
Boston. 

Street  Railways,  140. 
Brewer,  David  J.,  422. 
Bryan,  William  J.,  119. 


Churchill,  Winston,  378. 
Clemenceau,  George,  11,  105. 
Colson,  Clement,  116,  257. 
Congress     of    the    Federation 

of    Municipal    Enterprises, 

20. 
Contracts,  401-422. 
Copenhagen. 

^lunicipal  Accounts,   z'^. 
Corruption,  423-426. 


453 


INDEX 


Darwin,    Major    Leonard,     lO, 
127,  133,  189. 

Dausset,  Louis,  302-308,  325. 

Denmark. 

State  Ownership,  17;  Mu- 
nicipal Ownership,  18;  Ac- 
counting, 36. 

Docks. 

London,  24;    Austria,  42. 

Droz,  Numa,  93,  209-210. 


Edinburgh. 

Gas  and  Electricity,  134. 
Elbeuf,  Mayor  of,  v,  181. 
Electric  Lighting  Act  of  1882. 

In  Great  Britain,  25. 
Electricity. 

Paris,  21;  London,  26;  Den- 
mark, 36;  Great  Britain. 
131,  133,  295;  Birming- 
ham, 131-132;  Bath,  132; 
Results  in  Edinburgh,  134; 
Glasgow,  134;  Germany, 
260-265. 


Fabian  Society,  66. 
Faure,  Fernand,  236. 
Field,  William,  66. 
Finance,   Government. 
France,      216-233,      236-240; 
Great  Britain,  233-235. 
Finance,  Municipal. 

Great  Britain,  183-190;    Ger- 
many,   190. 
Folkstone,  England. 

Housing,   158. 
Food   SuppHes,  Municipal. 
Switzerland,       i75-i79; 
France,    179-180,    386-387; 
Italy,  180. 
Forsans,  Paul,  vii. 
Fournière,   Eugène,  432. 
France. 
Western     (state)     Railroad, 
viii,  4,  II,  14,  105-113,  116, 


242,  259 ;  Government 
Ownership,  20;  Account- 
ing, 37-41  ;  Railways,  105- 
117,  122-123,  259,  272-279, 
31 1-3 I 2,  373,  377,  387-388, 
403-407;  Bond  Issue,  114- 
117;  Report  on  Cheap 
Housing,  162-174;  Food 
Supplies,  179-180;  Na- 
tional Printing  Office,  192- 
193,  219-222,  256-257,  288- 
289,  339-340  ;  Tobacco 
Monopoly,  194-201,  203- 
204,  289-290.  351-353;  Ac- 
counting, 199-204;  Match 
Monopoly,  201-204,  349- 
351;  Government  Finance, 
216-233,  236-240  ;  T  e  1  e  - 
phone,  241,  280-286,  297, 
354-363  ;  Southern  Ca- 
nal, 241  ;  Old  Age  Pen- 
sions, 246;  Fire  Insurance 
in  the  Côte  d'Or,  250-252; 
Telegraph,  286-288;  Army 
and  Navy,  296;  Navy.  308- 
311;  Labor,  308-316,  324- 
343;  Post  Office,  353-354; 
Employment  Agencies,  366- 
368  ;  Alcohol  Monopoly, 
385-386. 

Franchises. 
Italy,  411-413- 

Freycinet,    Charles    de,    8,    14. 

Garibaldi,  Giuseppe,   164. 

Gas,  127-130. 
London,  25;  Denmark,  36; 
Manchester,  128;  Bir- 
mingham, 128;  Great  Brit- 
ain, 120.  130,  133-135,  317- 
318;  Edinburgh,  134; 
Glasgow,  134;  Paris,  305- 
308. 

Germany. 

Government  Ownership,  22; 
State  Coal  Mines,  22;  Em- 
ployees, 22;   Railways,  55- 


454 


INDEX 


71,  191,  274;  Housing,  162- 
164  ;  Municipal  Finance, 
190;  Alcohol  Monopoly, 
205-206;  Fire  Insurance, 
249-250  ;  Electricity,  260- 
265  ;  Municipal  Ownership, 
265-266. 

Giolitti,   Giovanni,    18,  407-413. 

Glasgow,   150. 

Tramways,     139-140;    Hous- 
ing,   156-157. 

Great  F)ritain. 
Municipal  Enterprises,  23; 
Public  Health  Act,  23; 
Railways,  118,  119,  122, 
191  ;  Results  of  Gas  and 
Electric  Enterprises,  132- 
135;  Tramways,  136-150; 
Housing,  151-160;  Munici- 
pal Finance,  183-190;  Gov- 
ernment Finance,  233-235  ; 
Piers,  258-259  ;  Labor,  344- 
347  ;  Telephone,  363-364  ; 
Appendix  "C." 

Grierson,  J.,  66 

Griiber,  J.  G.,  21. 

Guerigny. 
Steel  Plant,  223-227. 


Hadley,  Arthur,  viii. 

Holcombe,  A.  N.,  294. 

Holland. 

Coal  Mines,  18;  Railways, 
18,  74,  119;  Official  Jour- 
nal, 18;  Accounting,  36; 
Mines,  37;  Housinj;.  166. 

Housing,  Municipal. 

Great  Britain,  151-160; 
Europe.  162-174. 

Housing  of  the  Working 
Classes  Act  of  August 
18,   1890,  in  Great  Britain, 

Humanité,  vi. 
Hungary. 
Railways,  73-76,  275  ;   Hous- 
ing,   167-168. 


I    India. 

!        Railways,   119. 

'    Insurance    Monopoly,   vii. 

Italy,  20,  193,  243-249,  375- 
377,  407-411;  New  Zea- 
land, 28;  Uruguay,  249; 
Germany,  249-250;  Switz- 
erland, 250;  France,  250- 
252. 
International  Statistical  Insti- 
tute of  1900,  16,  17. 
Ireland. 

Tramways,   137. 
Iron. 

New  South  Wales,  192. 
Italy. 
Municipal  Enterprises,  18  ; 
Law  of  March  29,  1903, 
governing  the  Purchase  of 
Municipal  Undertakings, 
19;  Insurance  Monopoly, 
20,  193,  243-249,  375-377, 
407-411;  Railways,  77-87, 
122-123,  373-374;  Housing, 
164-165;  Food  Supplies, 
180;  Alcohol,  207;  Old 
Age  Pensions,  244;  Fran- 
chises, 411-413. 

Kelly,  Edmond,  382. 

Labor,   98,    99,    298,    299,    434, 

435. 
Denmark,  17,  18;  German 
Coal  ]\Iines,  22  ;  German 
Railroads,  70-71  ;  Hungar- 
ian Railroads,  76;  Italian 
Railroads,  80,  83-85  ;  Swiss 
Railroads,  92-93  ;  New 
Zealand,  98,  343-344  ; 
French  Railways,  113.  403- 
405;  Railways,  124;  Great 
Britain,  128,  143,  147,  316- 
318.  319-320,  344-347; 
France,  204,  308-316,  324- 
343;  Paris,  301-308;  Aus- 
tralia, 302,  Appendix  "B"  ; 
Prussia,     318-319;     United 


455 


INDEX 


States,    320-324  ;     Switzer- 
land,   326;     Austria,    338; 
Employment     Bureaus     in 
France,  366-368. 
Law,    Bonar,    138. 
Lefevre,  Shaw,   136. 
Legal  Decisions. 

French  Railways,  123. 
Leicester. 

Housing,  157. 
Léon,  Paul,  57. 
Light   Railways   Act   in    Great 

Britain,  138. 
Lille. 

Telephone,  358-360. 
Liverpool. 

Housing,  157. 
London. 

Water,  24  ;  Metropolitan 
Board  of  Works,  24,  26; 
Docks,  24;  Gas,  25;  Elec- 
tricity, 26  ;  Street  Rail- 
ways, 26,  Izi2-i47;  Ship- 
ping, 27;  Housing,  27,  152- 

154,   159- 
London  County  Council. 

Industrial  Operations,  24-26. 
Lotteries. 

Austria,  42. 
Louvre. 

Roofing  and  Lightning  Rods, 
7  ;    Art  Collections,  8. 
Luzzatti,  Luigi,   165. 


McDonald,    Ramsay,    189, 

401-402. 
McKenzie,  John,  31. 
Macler,  Charles,  272. 
Majerczik,   Wilhelm,  260. 
Manchester. 

Housing,  157;  Gas,  269. 
Mange,  Alfred,  57. 
Matches. 

France,  201-204,  349-351- 
Meyer,  Hugo,  61,  140,  141. 
Milhaud,    Edgard,    v,    vi, 
272,  394-397- 


Millar,  Hon.  J.  A.,  97. 

Milwaukee. 

Municipal  Ownership,  182, 

Mines. 
Holland,  18,  j,"]  ;  Germany, 
22;  Austria,  42;  New 
Zealand,  104;  Australia, 
191  ;  Prussia,  253-255,  318- 
319,  364-365. 

Mints,  17. 

Mullins,   Claude  W.,  431. 

Municipal  Corporations  Act  of 
1882,  23. 

Municipal  Employees  Associa- 
tion, 318. 

Municipal  Ownership,  394-397. 
Denmark,  18  ;  Italy,  18  ; 
Paris,  20,  266-267;  Aus- 
tria, 21  ;  Great  Britain,  23, 
125-126,  141-144;  Russia, 
27  ;  Cost  in  Austria,  43  ; 
Milwaukee,  182  ;  G  e  r  - 
many,  265-266  ;  Manches- 
ter, 269. 


National  Civic  Federation, 
22. 

National  Union  of  Gas  Work- 
ers and  General  Laborers, 

.318.  . 
Nationalization  of  the  Soil. 

New  Zealand,  30-32. 
Navies,  258. 

France,   227-230,   308-311; 
United  States,  257-258. 
New  Jersey. 
Public    Service    Corporation 
of,  420-421. 
New  South  Wales. 

Iron   Industry,    192. 
New  York  City. 

Labor,  320-324. 
New  Zealand. 

Government  Ownership,  28; 
Prussic  Acid  Process,  29; 
Nationalization  of  the 
Soil,    30-32;     Property 


456 


INDEX 


Holding,  32;  Railways,  94- 
104;   Labor,  343-344;  Cor- 
ruption,   424;    Great    For- 
tunes, 427-428. 
Norway. 

Housing,   168. 


Official   Conservatism,  292-299. 

Operating  Ratios. 

Prussian  Railways,  70;  Ital- 
ian Railways,  85  ;  Swiss 
Railways,  91  ;  French 
Railways,  116,  117,  120. 


Panama  Canal,  415-421. 
Paris. 

Municipal  Ownership,  20-21, 
41,     266-267;     Water,     21, 
348-349;      Electricity,      21; 
Street  Railways  and   Sub- 
ways,   21  ;    Stone    Quarry, 
42  ;      Municipal      Housing, 
170;    Credit,    171;    Labor, 
302-308.   325-326. 
Pelletan,  Camille,  9,  402. 
Peschaud,   ]\Iarcel,  46. 
Pensions.  Government,  312. 
Italy,    244,   407-411;    France, 
246. 
Peter  the  Great,  212. 
Piers. 

Great   Britain,  258-259. 
Plymouth,   England. 
Housing,   154-155- 
Port   of   London,  24. 
Postal   Savings   Banks. 

Great  Britain,  235. 
Postal  Systems,  17. 
United   States,  23  ;     Cost   in 
Holland,  36,  37  ;    Sweden, 
41  ;     France,    222,    230-233. 
Post  Office. 

France.  353-354- 
Pratt,  Edwin,  63,   118. 
Prussia. 
Railways,  viii,  55-71,  74,  118, 


123;    Mines.   253-255.   318- 
319;   Corruption,  423. 

Public   Health   Act  of   1875  in 
Great  Britain,  23. 

Publications,  State. 
Holland,  18. 

Rafifalovich,     Arthur,     16,     17, 
265. 

Railways,  Government. 
Prussia,  viii  ;  Western 
(state)  Railroad  of 
France,  viii,  4,  11,  14,  105- 
113,  116,  242,  259;  Den- 
mark, 17;  Switzerland,  18, 
88-93,  242,  293,  326,  431; 
Holland,  18;  Belgium,  21, 
46-54;  Sweden,  21,  41; 
Austria,  43,  72-7?,,  374-375  : 
Germany,  55-71  ;  Alsace- 
Lorraine,  56;  Prussia,  56- 
71  ;  Taxation  in  Germany 
and  Great  Britain,  57; 
Hungary,  73-76  ;  Bavaria, 
74;  Roumania,  74;  Italy, 
77-87,  373-374;  New  Zea- 
land, 94-104;  France,  105- 
117,  118-119,  259,  272-279, 
^72^  ^77,  387-388,  403-407; 
United  States,  119;  Great 
Britain,  122-123;  Labor, 
311-312. 

Rambla   Case,   The,  413-415. 

Raper,  Charles  Lee.  123. 

Rates,  123. 
Belgian  Railway,  52-54  ;  Ger- 
man Railway,  59-68;  Ber- 
lin Milk,  61  ;  /\ustria,  73  ; 
Hungary,  74;  Gas  and 
Electricity  in  Great  Brit- 
ain, 122,  129;  Telephone 
in  France,  361-362. 

Raynal,  9. 

Richmond. 
Housing,   157. 

Riemer,  Doctor  Rudolph,  21. 

Roche,  Jules,  216. 

Rolleston,  Hon.  William,  30. 

Rosebery,  Earl  of,  159. 


457 


INDEX 


Roumania. 
Average    Railway    Receipts, 

74- 
Russia. 
Alcohol    Monopoly,    13,  212- 
215,    Appendix    "A"  ;    Mu- 
nicipal   Ownership,    27. 
Saar,  District  of 

Mines,  253-255,  364-365. 
Salford. 

Housing,  158. 
Samuelson,  Sir  Bernard,  66. 
Sanitation. 

France,  7. 
Schelle,  Gustave. 

Report  to  the  International 
Institute,    16-17,   35-45,  46- 

54- 
Scholefield,  Guy  H.,  30. 
Sembat,  Marcel,  280. 
Sewers. 

New  York,  323-324. 
Shaw,  Bernard,   159,  427. 
Sheffield. 

Tramways,    141-142;    Hous- 
ing, 158. 
Snowden,   Philip,  433. 
Socialism,  381-393,  430. 

France,    viii  ;    Definition    of, 

427- 
Société     des     Intérêts     Écon- 
omiques, vii. 
Shipping. 

Belgium,  21  ;  London,  27. 
State   Ownership,    394-397. 
Denmark,     17;    France,    20; 
Austria.  21;  Germany,  22; 
New  Zealand.  28. 
State    Socialism   in    New   Zea- 
land, 28. 
Stone  Quarries,   Municipal. 

Paris.  42. 
Street  Cleaning. 
Paris,  303-304. 
Street  Railways. 

Paris.  21  ;  London,  26,  142- 
147;  Belgium,  119;  Great 
Britain,    136-150;    Ireland, 


137  ;  Glasgow,  140  ;  Bos- 
ton, 140;  Birmingham, 
140;  Sheffield,  141-142; 
Germany,  265. 

Strikes,    Government. 
Italian  Railroads,  80. 

Subways. 
Paris,  21. 

Supreme  Court  of  the  United 
States,  421. 

Sweden. 
Railways,  21,  41  ;  State  Own- 
ership, 41  ;   Postal  System, 
41  ;    Telegraph.    41  ;    Tele- 
phone, 41  ;  Housing,  168. 

Swinton,  Campbell,  131. 

Switzerland. 
Alcohol  Monopoly,  12.  18, 
207-212,  Ohmgeld  Duties, 
12,  208;  Railways,  18,  88- 
93,  242,  275,  276,  293,  326. 
431;  Housing,  166;  Food 
Supplies,  175-180;  Insur- 
ance, 250. 

Taft,  William  H.,  23,  420. 

Taussig,  F.  W.,  424. 

Taxation. 
French     Railways,     120-121  ; 
Great     Britain,     186-188, 
191  ;   German    Railways, 
191. 

Telegraphs,  17. 

United  States,  23  ;  Cost  in 
Holland,  36,  37  ;  Sweden, 
41  ;  France,  222,  230-233, 
286-288  ;      Great      Britain, 

233-235- 
Telephones,  17,  294-295. 
Holland,  36-37  ;  Sweden,  41  ; 
France,    222,    230-233,    241, 

280-286.   297,   354-363  ; 

Great  Britain,  259,  363-364, 

Appendix  "C." 
Thomas,  Albert,  272. 
Tobacco. 

France,    194-201,    289-290, 

351-353- 


458 


INDEX 


Tramway  Act  of  1870  in  Great 
Britain,  26,  137,  139. 

United   States. 

Post  Office  and  Telegraph 
Service,  23  ;  Railways, 
119;  Street  Railways,  140- 
141;  Navy,  257-258;  La- 
bor, 320-324;  Efficiency  in 
Government  Service,  369- 
372;  Panama  Canal,  415- 
421. 

Uruguay. 
Life     Insurance,    249;     The 
Rambla  Case,  413-415. 


Vaile,  Samuel,  103. 
Vogel,  Sir  Julius,  28. 
Waddington,   Richard,  402. 
Ward,    Sir   Joseph,  97. 
Water. 

Paris,   21,   348-349;    London, 

24  ;  Denmark,  36. 
Webb,   H.   Laws,  233. 
Webb,  Sidney,  433. 
Welton,  Benjamin,  267,  320. 
Western    (state)    Railroad    of 

France,  viii,  4,  11,  14,  105- 

113,  116,  242,  259. 
Wilson,  Woodrow,  420. 
Witte,  Serge  de,  215. 


459 


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Illustrations  Showing  the  Importance  of  Property  in  Wealth  Distribu- 
tion, III,  Property  Defined  and  Described,  IV  Property,  Possession, 
Estate,  Resources,  V  The  Attribute  and  Characteristic  of  Property,  VI 
The  Social  Theory  of  Private  Property,  VII  Property  and  the  Police 
Power,  VIII  What  May  I  Own  ?  IX  The  Conservative  Nature  of  the 
Social  Theory  of  Property,  X,  XI  A  Discussion  of  the  Kinds  of  Property, 

XII  The  General  Grounds  for  the  Maintenance  of  Private  Property, 

XIII  A  Critical  Examination  of  the  General  Grounds  for  the  Maintenance 
of  Private  Property,  XIV,  XV,  XVI,  XVII,  XVIII,  XIX  The  Present 
and  Future  Development  of  Private  Property,  XX  The  Transformation 
of  Public  Property  Into  Private  Property  and  of  Private  Property  Into 
Public  Property,  XXI  The  Management  of  Public  Property  With 
Reference  to  Distribution,  XXII  Theories  of  the  Origin  of  Private 
Property;  Part  II,  Contract  and  Its  Conditions:  I  Introductory  Observa- 
tions, II  Contract  Defined  and  Described,  III  The  Economic  Significance 
of  Contract,  IV  Contract  and  Individualism,  V  Criticism  of  the  Indi- 
vidualistic Theory  of  Contract  and  the  Social  Theory,  VI  Contracts  for 
Personal  Services,  VII  Class  Legislation,  VIII  Facts  As  to  Impairment 
of  Liberty,  IX  The  Courts  and  Constitutions,  X  Concluding  Observa- 
tions; Appendix  I,  Part  III,  Vested  Interests;  Appendix  II,  Part  IV 
Personal  Conditions;  Appendix  III,  Production,  Present  and  Future, 
by  W.  I.  King,  Ph.D.,  Instructor  in  Statistics,  University  of  Wisconsin; 
Appendix  IV,  List  of  Cases  Illustrating  the  Attitude  of  the  Courts 
Toward  Property  and  Contract  Rights  and  the  Consequent  Evolution  of 
These  Rights  by  Samuel  P.  Orth,  Ph.D.,  Professor  of  Political  Science, 
Cornell  University. 

THE  MACMILLAN  COMPANY 

Publishers  64-66  Fifth  Avenue  New  York 


NEW  BOOKS   ON  IMPORTANT  TOPICS 


The  Income  Tax 

By  EDWIN  R.  A.   SELIGMAN 

McVickar    Professor    of    Political    Economy    in    Columbia 

University  and  Author  of  "Essays  in  Taxation." 

New  edition  with  new  matter. 

Cloth,  8vo 
Professor  Seligman  has  added  to  his  study  of  the  history 
and  practice  of  income  taxation  at  home  and  abroad  a  chap- 
ter dealing  with  the  new  income  tax  law.  This  standard  work 
is  thus  brought  in  line  with  the  latest  developments  in  the 
field  of  which  it  treats  so  satisfactorily. 

The  Theory  of  Interest 

By  C.   G.   HOAG. 

Cloth,  i2mo 
This  book  is  an  analysis,  on  original  lines,  of  the  causes  of 
the  existence  and  the  persistence  of  interest,  that  is,  of  a 
positive  price  for  advances.  The  analysis  is  expressed  not 
only  in  the  terms  of  ordinary  discourse,  but  also  in  those  of 
algebra  and  geometry.  Its  original  feature,  which  is  also  its 
key,  is  a  distinction  between  two  sorts  of  value  whose  con- 
fusion with  each  other  hitherto  is  chiefly  responsible,  in  the 
author's  opinion,  for  the  failure  of  economists  to  solve  the 
problem  of  interest  to  each  other's  satisfaction.  This  dis- 
tinction may  prove  to  be  an  important  modification  of  the 
current  theory  of  value.  The  practical  outcome  of  the  analy- 
sis is  the  conclusion  that  interest  is  inevitable  under  any  or- 
ganization of  society  and  that  it  is  perfectly  defensible  morally 
because  truly  earned  in  the  strictest  sense  of  that  word. 

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PROFESSOR  IRVING   FISHER'S  NEW   STUDY 

Why  Is  the  Dollar  Shrinking? 

A  Study  of  the  Causes 
Underlying  the  High  Cost  of  Living 

By  IRVING  FISHER 

Author  of  "The  Purchasing  Power  of  Money,"  etc. 

Cloth,  8vo 

Many  books  have  been  written  on  money  and  on  the  high 
cost  of  living,  but  this  is  a  book  on  both.  It  tells  simply 
why  and  how  an  increased  gold  supply  and  an  increased  use 
of  checks  tend  to  raise  prices.  It  traces  the  history  of  gold 
discovery  and  banking  in  relation  to  price  movement,  gives 
the  latest  statistics,  shows  how  the  recent  reduction  of  the 
tariff  and  the  formation  of  federal  reserve  banks  will  affect 
the  purchasing  power  of  our  dollars  and  in  popular  language 
explains  how  the  equation  of  exchange  fixes  the  general  level 
of  prices  as  distinguished  from  the  individual  prices  fixed  by 
supply  and  demand. 

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Publishers         64-66  Fifth  Avenue         New  York 


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